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Heterogeneous beliefs and the Phillips curve

Author

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  • Roland Meeks

    (International Monetary Fund)

  • Francesca Monti

    (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

  • Roland Meeks & Francesca Monti, 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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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Minsu Chang & Xiaohong Chen & Frank Schorfheide, 2024. "Heterogeneity and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 132(12), pages 4021-4067.
    2. Hilde C. Bjørnland & Yoosoon Chang & Jamie L. Cross, 2023. "Oil and the Stock Market Revisited: A Mixed Functional VAR Approach," CAMA Working Papers 2023-18, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Philippe Goulet Coulombe, 2022. "A Neural Phillips Curve and a Deep Output Gap," Papers 2202.04146, arXiv.org, revised Oct 2024.
    4. Philippe Goulet Coulombe & Karin Klieber & Christophe Barrette & Maximilian Goebel, 2024. "Maximally Forward-Looking Core Inflation," Papers 2404.05209, arXiv.org.
    5. Tsiaplias, Sarantis, 2020. "Time-Varying Consumer Disagreement and Future Inflation," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    6. Grimaud, Alex & Salle, Isabelle & Vermandel, Gauthier, 2025. "A Dynare toolbox for social learning expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 172(C).
    7. Andreasen, Martin M. & Caggiano, Giovanni & Castelnuovo, Efrem & Pellegrino, Giovanni, 2024. "Does risk matter more in recessions than in expansions? Implications for monetary policy," Journal of Monetary Economics, Elsevier, vol. 143(C).
    8. Michael Ehrmann & Paul Hubert, 2022. "Information Acquisition ahead of Monetary Policy Announcements," Working papers 897, Banque de France.
    9. Philip Bunn & Lena Anayi & Emily Barnes & Nicholas Bloom & Paul Mizen & Gregory Thwaites & Ivan Yotzov, 2024. "How Curvy is the Phillips Curve?," NBER Working Papers 33234, National Bureau of Economic Research, Inc.
    10. Meeks, Roland & Monti, Francesca, 2023. "Heterogeneous beliefs and the Phillips curve," Journal of Monetary Economics, Elsevier, vol. 139(C), pages 41-54.
    11. Arndt, Sarah, 2024. "Different Newspapers – Different Inflation Perceptions," Working Papers 0748, University of Heidelberg, Department of Economics.
    12. Czudaj, Robert L., 2023. "Anchoring of Inflation Expectations and the Role of Monetary Policy and Cost-Push Factors," MPRA Paper 119029, University Library of Munich, Germany.
    13. Andros Kourtellos & Christos Antonios Statheas & Marios Zachariadis, 2025. "What can we learn from the distributions of inflation expectations across European households?," University of Cyprus Working Papers in Economics 02-2025, University of Cyprus Department of Economics.
    14. Yoosoon Chang & Soyoung Kim & Joon Y. Park, 2025. "How Do Macroaggregates and Income Distribution Interact Dynamically? A Novel Structural Mixed Autoregression with Aggregate and Functional Variables," CAMA Working Papers 2025-07, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    15. Rychalovska, Yuliya & Slobodyan, Sergey & Wouters, Raf, 2025. "Survey expectations, learning and inflation dynamics," European Economic Review, Elsevier, vol. 180(C).
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    18. Christian Bayer & Luis Calderon & Moritz Kuhn, 2025. "Distributional Dynamics," ECONtribute Discussion Papers Series 351, University of Bonn and University of Cologne, Germany.
    19. Ellison, Martin & Macaulay, Alistair, 2021. "A rational inattention unemployment trap," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).

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    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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