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A naïve sticky information model of households' inflation expectations

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  • Lanne, Markku
  • Luoma, Arto
  • Luoto, Jani

Abstract

This paper shows that the Michigan survey data on inflation expectations is consistent with a simple sticky information model where a significant proportion of households base their inflation expectations on the past release of actual inflation rather than the rational forward-looking forecast. In particular, the model can explain both the mean and cross-sectional distribution of households' inflation expectations.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 6 (June)
Pages: 1332-1344

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Handle: RePEc:eee:dyncon:v:33:y:2009:i:6:p:1332-1344

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Inflation expectations Heterogeneous expectations Survey expectations Sticky information Bayesian analysis;

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Citations

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Cited by:
  1. Carrera, César, 2012. "Estimating Information Rigidity using Firms’ Survey Data," Working Papers 2012-004, Banco Central de Reserva del Perú.
  2. Damjan Pfajfar & Emiliano Santoro, 2013. "News on Inflation and the Epidemiology of Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1045-1067, 09.
  3. Easaw Joshy & Golinelli Roberto, 2010. "Households Forming Inflation Expectations: Active and Passive Absorption Rates," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-32, November.
  4. J. Easaw & R. Golinelli & M. Malgarini, 2012. "Do Households Anchor their Inflation Expectations? Theory and Evidence from a Household Survey," Working Papers wp842, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Hyytinen, Ari & Putkuri, Hanna, 2012. "Household optimism and borrowing," Research Discussion Papers 21/2012, Bank of Finland.
  6. Paul Hubert, 2013. "FOMC forecasts as a focal point for private expectations," Documents de Travail de l'OFCE 2013-12, Observatoire Francais des Conjonctures Economiques (OFCE).
  7. Olivier Armantier & Scott Nelson & Giorgio Topa & Wilbert van der Klaauw & Basit Zafar, 2012. "The price is right: updating of inflation expectations in a randomized price information experiment," Staff Reports 543, Federal Reserve Bank of New York.

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