IDEAS home Printed from https://ideas.repec.org/p/idb/brikps/14068.html

Aggregate Implications of Heterogeneous Inflation Expectations: The Role of Individual Experience

Author

Listed:
  • Pedemonte, Mathieu
  • Toma, Hiroshi
  • Verdugo, Esteban

Abstract

We explore the implications of heterogeneous, history-dependent inflation expectations in a general equilibrium setting. We propose an experience-based expectations-augmented Kalman filter to represent consumers' heterogeneous inflation expectations, where heterogeneity arises from an anchoring-to-the-past mechanism. Using survey data, we show that the model replicates US consumers' inflation expectations and their heterogeneity across cohorts. We introduce this mechanism into a New Keynesian model and find that heterogeneous expectations anchor aggregate responses to the agents' inflation history, producing sluggish expectations dynamics. Central banks should be active to prevent inflationary episodes that agents will remember far into the future.

Suggested Citation

  • Pedemonte, Mathieu & Toma, Hiroshi & Verdugo, Esteban, 2025. "Aggregate Implications of Heterogeneous Inflation Expectations: The Role of Individual Experience," IDB Publications (Working Papers) 14068, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:14068
    DOI: http://dx.doi.org/10.18235/0013495
    as

    Download full text from publisher

    File URL: https://publications.iadb.org/publications/english/document/Aggregate-Implications-of-Heterogeneous-Inflation-Expectations-The-Role-of-Individual-Experience.pdf
    Download Restriction: no
    File URL: https://libkey.io/http://dx.doi.org/10.18235/0013495?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Ángelo Gutiérrez-Daza, 2024. "Business Cycles when Consumers Learn by Shopping," Working Papers 2024-12, Banco de México.
    3. Ahn, Hie Joo & Xie, Shihan & Yang, Choongryul, 2024. "Effects of monetary policy on household expectations: The role of homeownership," Journal of Monetary Economics, Elsevier, vol. 147(C).
    4. Carola Conces Binder & Rupal Kamdar & Jane M. Ryngaert, 2024. "Partisan Expectations and COVID-Era Inflation," NBER Chapters, in: Inflation in the COVID Era and Beyond, National Bureau of Economic Research, Inc.
    5. Oliver Pfauti, 2023. "The Inflation Attention Threshold and Inflation Surges," Papers 2308.09480, arXiv.org, revised Aug 2024.
    6. Go Fujii & Shogo Nakano & Kosuke Takatomi, 2025. "Households' Medium- to Long-Term Inflation Expectations Formation: The Role of Past Experience and Inflation Regimes," Bank of Japan Working Paper Series 25-E-6, Bank of Japan.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:idb:brikps:14068. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Felipe Herrera Library (email available below). General contact details of provider: https://edirc.repec.org/data/iadbbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.