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Heterogeneous Beliefs and the Phillips Curve

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  • Roland Meeks
  • Francesca Monti

Abstract

Heterogeneous beliefs modify the New Keynesian Phillips curve by introducing a term in the cross-section distribution of expectations. We develop a novel functional data approach to estimation and inference in survey-based Phillips curves that accounts for variation in distributions of expectations, generalizing standard approaches. Our findings demonstrate the statistical and economic importance of heterogeneous beliefs for inflation dynamics, especially during periods of macroeconomic disruption.Our findings hold in similar form across two major economies.

Suggested Citation

  • Roland Meeks & Francesca Monti, 2022. "Heterogeneous Beliefs and the Phillips Curve," CAMA Working Papers 2022-51, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2022-51
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2022-09/51_2022_meeks_monti.pdf
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    References listed on IDEAS

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    Cited by:

    1. Schorfheide, Frank & Chang, Minsu & Chen, Xiaohong, 2021. "Heterogeneity and Aggregate Fluctuations," CEPR Discussion Papers 16183, C.E.P.R. Discussion Papers.
    2. Tsiaplias, Sarantis, 2020. "Time-Varying Consumer Disagreement and Future Inflation," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    3. Ellison, Martin & Macaulay, Alistair, 2021. "A rational inattention unemployment trap," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    4. Michael Ehrmann & Paul Hubert, 2022. "Information Acquisition ahead of Monetary Policy Announcements," Working papers 897, Banque de France.
    5. Hilde C. Bjørnland & Yoosoon Chang & Jamie L. Cross, 2023. "Oil and the Stock Market Revisited: A mixed functional VAR approach," Working Papers No 03/2023, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    6. Philippe Goulet Coulombe, 2022. "A Neural Phillips Curve and a Deep Output Gap," Working Papers 22-01, Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management.
    7. Philippe Goulet Coulombe, 2022. "A Neural Phillips Curve and a Deep Output Gap," Papers 2202.04146, arXiv.org.

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    More about this item

    Keywords

    Inflation dynamics; New Keynesian Phillips curve; Survey expectations; Functional principal Components; Functional regression;
    All these keywords.

    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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