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Do You Know that I Know that You Know...? Higher-Order Beliefs in Survey Data

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  • Coibion, O
  • Gorodnichenko, Y
  • Kumar, S
  • Ryngaert, J

Abstract

We implement a new survey of firms, focusing on their higher-order macroeconomic expectations. The survey provides a novel set of stylized facts regarding the relationship between first-order and higher-order expectations of economic agents, including how they adjust their beliefs in response to a variety of information treatments. We show how these facts can be used to calibrate key parameters of noisy-information models with infinite regress as well as to test predictions made by this class of models. We also consider a range of extensions to the basic noisy-information model that can potentially better reconcile theory and empirics. Although some extensions like level-k thinking are unsuccessful, incorporating heterogeneous long-run priors can address the empirical shortcomings of the basic noisy-information model.

Suggested Citation

  • Coibion, O & Gorodnichenko, Y & Kumar, S & Ryngaert, J, 2021. "Do You Know that I Know that You Know...? Higher-Order Beliefs in Survey Data," Department of Economics, Working Paper Series qt5cd1r3bd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:econwp:qt5cd1r3bd
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    More about this item

    Keywords

    Economics;

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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