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Information Rigidity and the Expectations Formation Process

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  • Olivier Coibion
  • Yuriy Gorodnichenko

Abstract

We propose a new approach to test the full-information rational expectations hypothesis which can identify whether rejections of the arise from information rigidities. This approach quantifies the economic significance of departures from the and the underlying degree of information rigidity. Applying this approach to U.S. and international data of professional forecasters and other agents yields pervasive evidence consistent with the presence of information rigidities. These results therefore provide a set of stylized facts which can be used to calibrate imperfect information models. Finally, we document evidence of state-dependence in the expectations formation process.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/296.

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Length: 55
Date of creation: 20 Dec 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/296

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Keywords: Economic forecasting; Economic models; inflation; rational expectations; monetary policy; inflation forecasts; monetary economics; monetary fund; inflation rate; annual inflation; gdp deflator; optimal monetary policy; average inflation; adaptive expectations; aggregate demand; inflation dynamics; monetary policy rules; inflation targeting; central bank; macroeconomic stability; transmission of monetary policy; average inflation rate; inflation process; inflationary expectations; neutrality of money; real interest rates; price inflation;

References

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  1. Lloyd B. Thomas, 1999. "Survey Measures of Expected U.S. Inflation," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 125-144, Fall.
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Citations

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Cited by:
  1. Ueno, Yuko, 2014. "Updating Behavior of Inflation Expectations: Evidence from Japanese Household Panel Data," CIS Discussion paper series 617, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  2. Andrade, P. & Le Bihan, H., 2010. "Inattentive professional forecasters," Working papers 307, Banque de France.
  3. James M. Nason & Gregor W. Smith, 2013. "Measuring the Slowly Evolving Trend in US Inflation with Professional Forecasts," Working Papers 1316, Queen's University, Department of Economics.
  4. Monica Jain, 2013. "Perceived Inflation Persistence," Working Papers 13-43, Bank of Canada.
  5. Paul Hubert & Mirza Harun, 2014. "Inflation expectation dynamics: the role of past present and forward looking information," Sciences Po publications 2014-07, Sciences Po.

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