Year: 2003
Type: report
Abstract: Analyzing 50 years of inflation expectations data from several sources, we document substantial disagreement among both consumers and professional economists about expected future inflation.Moreover, this disagreement shows substantial variation through time, moving with inflation, the absolute value of the change in inflation, and relative price variability.We argue that a satisfactory model of economic dynamics must speak to these important business cycle moments.Noting that most macroeconomic models do not endogenously generate disagreement, we show that a simple "sticky-information" model broadly matches many of these facts.Moreover, the sticky-information model is consistent with other observed departures of inflation expectations from full rationality, including autocorrelated forecast errors and insufficient sensitivity to recent macroeconomic news.
DOI: 10.3386/w9796
Institutions: Harvard University, Stanford University
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2171720247