On Expectations, Heterogeneity and the Phillips Curve PDF Download

Author: Alex Grimaud
Publisher:
ISBN:
Category :
Languages : en
Pages : 194

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Author: Gustavo Rojas-Matute
Publisher:
ISBN:
Category : Business enterprises
Languages : en
Pages : 95

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How firms set their prices is of special importance in macroeconomics and, in particular, for monetary policy. This dissertation investigates price-setting behavior from two different perspectives and two different environments, from low inflation to hyperinflation.In Chapter 1, I point out that firms seem to pay more attention to GDP growth rates in economies with well-anchored inflation expectations than CPI inflation. I study how this heterogeneity affects price-setting behavior. I analyze three types of firms: those that only track GDP, those that only track CPI, and those that track both. The findings can be summarized as follows: (i) both GDP growth rate and CPI inflation expectations affect price-setting behavior but in opposite directions; (ii) the impact of long-run inflation expectations on price-setting behavior is more substantial than short-run expectations; (iii) in the presence of adjustment costs, the frequency of price changes of those firms that only track GDP growth rate is highly correlated with the series estimated by Nakamura et al., (2018) with data provided by the Bureau of Labor Statistics (BLS); (iv) in the short run, the output response to a monetary shock is larger while the price response is smaller in those firms that only track GDP growth rate than in those firms that only update CPI; (v) adjustment costs amplify monetary non-neutrality in only-GDP firms. If the aggregate effect is driven by ``only-GDP" firms, as suggested in (iii), the results are consistent with recent findings suggesting that the Phillips curve is flat (Del Negro et al., 2020, Hazell et al., 2020).In Chapter 2, I take advantage of a ``natural experiment" to study the impact of the lack of official information on price-setting behavior. In particular, I study a case between December 2015 and May 2019, when the Central Bank of Venezuela stopped releasing official economic statistics, including inflation rate, GDP, and balance of payments. Using a combination of data sets from the Billion Prices Project, I find that the lack of official information increases the size of price changes (intensive margin), leading the intensive margin to be the main driver of the variance of the inflation. The empirical results are confirmed with the calibration of a price-setting behavior model. The model suggests that the turning point occurred when the Central Bank started delaying the publications (2012-2014) before deciding to stop them entirely in 2015. These findings are groundbreaking because they occur in a context of hyperinflation where prices change very frequently and differ from the most recent literature that has shown that the extensive margin contributes the most during high inflation and hyperinflation (Alvarez et al., 2019, Gagnon, 2009). The evidence also suggests that, despite the surge of different non-official inflation indicators publicly available, firms rely on private sources.

Author: Roland Meeks
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 0

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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.

Author: Peter J. N. Sinclair
Publisher: Routledge
ISBN: 1135179778
Category : Business & Economics
Languages : en
Pages : 402

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Book Description
Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.

Author: Ruediger Bachmann
Publisher: Elsevier
ISBN: 0128234768
Category : Business & Economics
Languages : en
Pages : 876

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Book Description
Handbook of Economic Expectations discusses the state-of-the-art in the collection, study and use of expectations data in economics, including the modelling of expectations formation and updating, as well as open questions and directions for future research. The book spans a broad range of fields, approaches and applications using data on subjective expectations that allows us to make progress on fundamental questions around the formation and updating of expectations by economic agents and their information sets. The information included will help us study heterogeneity and potential biases in expectations and analyze impacts on behavior and decision-making under uncertainty. - Combines information about the creation of economic expectations and their theories, applications and likely futures - Provides a comprehensive summary of economics expectations literature - Explores empirical and theoretical dimensions of expectations and their relevance to a wide array of subfields in economics

Author: Michael P. Clements
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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The expectations-augmented Phillips curve (PC) is a cornerstone of many macroeconomic models. We consider the extent to which professional forecasters' inflation and unemployment rate forecasts are `theory consistent', and find much heterogeneity. Perceptions about the responsiveness of inflation to the unemployment rate are shown to depend on whether the respondent was active earlier or later during the period 1981--2019, and on whether the respondent happened to forecast at times of tight labour markets.At the shortest horizon, theory-consistency is related to more accurate forecasts, but not significantly so at longer horizons. At longer horizons PC-model heterogeneity accounts for the lion's share of the observed disagreement in reported inflation forecasts.

Author: Mark Gertler
Publisher: Mit Press
ISBN: 9780262072533
Category : Business & Economics
Languages : en
Pages : 432

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Book Description
The NBER Macroeconomics Annual presents pioneering work in macroeconomics by leading academic researchers to an audience of public policymakers and the academic community. Each commissioned paper is followed by comments and discussion. This year's edition provides a mix of cutting-edge research and policy analysis on such topics as productivity and information technology, the increase in wealth inequality, behavioral economics, and inflation.

Author: Mr.Rudolfs Bems
Publisher: International Monetary Fund
ISBN: 148439223X
Category : Business & Economics
Languages : en
Pages : 31

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Understanding the sources of inflation persistence is crucial for monetary policy. This paper provides an empirical assessment of the influence of inflation expectations' anchoring on the persistence of inflation. We construct a novel index of inflation expectations' anchoring using survey-based inflation forecasts for 45 economies starting in 1989. We then study the response of consumer prices to terms-of-trade shocks for countries with flexible exchange rates. We find that these shocks have a significant and persistent effect on consumer price inflation when expectations are poorly anchored. By contrast, inflation reacts by less and returns quickly to its pre-shock level when expectations are strongly anchored.

Author: Stephen J. Cole
Publisher:
ISBN:
Category :
Languages : en
Pages :

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The adaptive learning approach has been fruitfully employed to model the formation of aggregate expectations at the macroeconomic level, as an alternative to rational expectations. This paper uses adaptive learning to understand, instead, the formation of expectations at the micro-level, by focusing on individual expectations and, in particular, trying to account for their heterogeneity. We exploit survey data on output and inflation expectations by individual professional forecasters. We link micro and macro by endowing forecasters with the same information set that they would have as economic agents in a benchmark New Keynesian model. Forecasters are, however, allowed to differ in the constant gain values that they use to update their beliefs. We estimate the best-fitting constant gain for each forecaster. We also extract individual measures of sentiment, defined as the degrees of excess optimism and pessimism that cannot be justified by the near-rational learning model, given the state of the economy and the updated beliefs. Our results highlight the heterogeneity in the gain coefficients adopted by forecasters, which is particularly pronounced at the beginning of the sample. The median values are consistent with those typically estimated using aggregate data, and display some moderate time variation: they occasionally jump to higher values in the 1970-80s, and stabilize in the 1990s and 2000s. Individual sentiment is persistent and heterogeneous. Differences in sentiment, however, don't simply cancel out in the aggregate: the majority of forecasters exhibit excess optimism, or excess pessimism, at the same time.

Author: Peter J N Sinclair
Publisher: Routledge
ISBN: 1135179786
Category : Business & Economics
Languages : en
Pages : 273

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Book Description
This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved, including the spread of inflation targeting and the large reduction in actual inflation that has been observed in most countries over the past decade or so.