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Inferential Expectations and the Missing Middle of Price Changes

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  • Timo Henckel

    (Australian National University)

  • Gordon Menzies

    (University of Technology, Sydney)

  • Daniel Zizzo

    (School of Economics, University of East Anglia)

Abstract

Microeconomic evidence suggests price changes are either very small, or large. The theory of inferential expectations predicts this phenomena if agents use a low test size, reflecting a reluctance to change their minds on the basis of evidence.

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Bibliographic Info

Paper provided by School of Economics, University of East Anglia, Norwich, UK. in its series University of East Anglia Applied and Financial Economics Working Paper Series with number 008.

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Date of creation: 03 May 2010
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Handle: RePEc:uea:aepppr:2010_8

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Keywords: inferential Expectations; prices; near-rationality;

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  1. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284 Elsevier.
  2. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
  3. Gordon D. Menzies & Daniel John Zizzo, 2005. "Inferential Expectations," CAMA Working Papers 2005-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," NBER Working Papers 11043, National Bureau of Economic Research, Inc.
  5. Goldberg, Michael D & Frydman, Roman, 1996. "Imperfect Knowledge and Behaviour in the Foreign Exchange Market," Economic Journal, Royal Economic Society, vol. 106(437), pages 869-93, July.
  6. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
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