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Heterogeneous beliefs and the Phillips curve

Author

Listed:
  • Meeks, Roland
  • Monti, Francesca

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

Heterogeneous beliefs modify the New Keynesian Phillips curve by introducing a term in the cross-section distribution of expectations. To take that model to the data, we develop a novel functional data approach to estimation and inference that accounts for variation in distributions of expectations. We find that this variation may be summarized using a handful of functional factors, and demonstrate their statistical and economic relevance for inflation dynamics. Our results are among the first to highlight the potential benefits to be gained in empirical work from a rigorous treatment of diverse beliefs in the study of macroeconomic outcomes.

Suggested Citation

  • Meeks, Roland & Monti, Francesca, 2025. "Heterogeneous beliefs and the Phillips curve," LIDAM Reprints CORE 3332, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:3332
    DOI: https://doi.org/10.1016/j.jmoneco.2023.06.003
    Note: In: Journal of Monetary Economics, 2023, vol. 139, p. 41-54
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    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • 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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