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Heterogeneous Or Homogeneous Inflation Expectation Formation Models: A Case Study Of Chinese Households And Financial Participants

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  • YINGYING XU

    (School of Economics and Management, Beihang University, No. 37 Xueyuang Road, Haidian District, Beijing, P. R. China)

  • ZHIXIN LIU

    (School of Economics and Management, Beihang University, No. 37 Xueyuang Road, Haidian District, Beijing, P. R. China)

  • XING ZHANG

    (School of Economics and Management, Beihang University, No. 37 Xueyuang Road, Haidian District, Beijing, P. R. China)

Abstract

This paper attempts to identify whether the inflation expectation formation models adopted by Chinese agents are heterogeneous or homogeneous. A Gaussian mixture model is developed assuming that agents form inflation expectations by selecting a model from alternatives. Analysis results reveal that only adaptive expectation (AE) model is significant, indicating that both households and financial participants are fairly homogeneous in selecting inflation expectation formation models. Therefore, the mechanism of heterogeneous models is inoperative in explaining the heterogeneous inflation expectations in China, and the AE is the main driver of Chinese agents’ perceptions about cost.

Suggested Citation

  • Yingying Xu & Zhixin Liu & Xing Zhang, 2017. "Heterogeneous Or Homogeneous Inflation Expectation Formation Models: A Case Study Of Chinese Households And Financial Participants," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(04), pages 859-874, September.
    • Handle: RePEc:wsi:serxxx:v:62:y:2017:i:04:n:s0217590817400306
    DOI: 10.1142/S0217590817400306
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