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Heterogeneous beliefs and the Phillips curve

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  • Meeks, Roland

    (International Monetary Fund)

  • Monti, Francesca

    (Bank of England)

Abstract

We establish a set of novel empirical facts concerning cross-section distributions of inflation expectations reported in surveys. Almost all the variation in expectations about their mean may be summarized via three factors we call disagreement, skew, and shape. We adopt a functional principal component regression approach to estimating forward-looking models of inflation that exploits the heterogeneity present in individual-level data. By using survey information more effectively, our approach reveals an enhanced role for expectations in inflation dynamics that is robust to lagged inflation, trend inflation, and supply factors. Our findings hold in similar form across two major economies.

Suggested Citation

  • Meeks, Roland & Monti, Francesca, 2019. "Heterogeneous beliefs and the Phillips curve," Bank of England working papers 807, Bank of England.
  • Handle: RePEc:boe:boeewp:0807
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    Cited by:

    1. Michael Ehrmann & Paul Hubert, 2022. "Information Acquisition ahead of Monetary Policy Announcements," Working papers 897, Banque de France.
    2. Minsu Chang & Xiaohong Chen & Frank Schorfheide, 2021. "Heterogeneity and Aggregate Fluctuations," NBER Working Papers 28853, National Bureau of Economic Research, Inc.
    3. Hilde C. Bjørnland & Yoosoon Chang & Jamie L. Cross, 2023. "Oil and the Stock Market Revisited: A mixed functional VAR approach," Working Papers No 03/2023, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    4. Philippe Goulet Coulombe, 2022. "A Neural Phillips Curve and a Deep Output Gap," Working Papers 22-01, Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management.
    5. Tsiaplias, Sarantis, 2020. "Time-Varying Consumer Disagreement and Future Inflation," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    6. Ellison, Martin & Macaulay, Alistair, 2021. "A rational inattention unemployment trap," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    7. Philippe Goulet Coulombe, 2022. "A Neural Phillips Curve and a Deep Output Gap," Papers 2202.04146, arXiv.org.

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    More about this item

    Keywords

    Survey expectations; inflation dynamics; density function; functional regression; functional principal components;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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