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| dc.title | Aggregate Implications of Heterogeneous Inflation Expectations: The Role of Individual Experience |
| dc.contributor.author | Pedemonte, Mathieu |
| dc.contributor.author | Toma, Hiroshi |
| dc.contributor.author | Verdugo, Esteban |
| dc.contributor.orgunit | Department of Research and Chief Economist |
| dc.date.available | 2025-04-15T00:04:00 |
| dc.date.issue | 2025-04-15T00:04:00 |
| dc.description.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. |
| dc.format.extent | 88 |
| dc.identifier.doi | http://dx.doi.org/10.18235/0013495 |
| dc.identifier.url | https://publications.iadb.org/publications/english/document/Aggregate-Implications-of-Heterogeneous-Inflation-Expectations-The-Role-of-Individual-Experience.pdf |
| dc.language.iso | en |
| dc.publisher | Inter-American Development Bank |
| dc.subject | Inflation |
| dc.subject | Inflation Targeting |
| dc.subject | Population Aging |
| dc.subject | Small Business |
| dc.subject | Macroeconomy |
| dc.subject | Output Gap |
| dc.subject | Interest Rate |
| dc.subject.jelcode | D84 - Expectations • Speculations |
| dc.subject.jelcode | E31 - Price Level • Inflation • Deflation |
| dc.subject.jelcode | E58 - Central Banks and Their Policies |
| dc.subject.jelcode | E71 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy |
| dc.subject.keywords | Belief formation;Heterogeneous expectations;survey data;Overextrapolation |
| dc.type | Working Papers |
| idb.identifier.pubnumber | IDB-WP-01699 |
| idb.operation | RG-K1098 |