A Naïve Sticky Information Model of Households’ Inflation Expectations

Markku Lanne, Arto Luoma and Jani Luoto

MPRA Paper from University Library of Munich, Germany

Abstract: This paper provides a simple epidemiology model where households, when forming their inflation expectations, rationally adopt the past release of inflation with certain probability rather than the forward-looking newspaper forecast as suggested in Carroll [2003, Macroeconomic Expectations of Households and Professional Forecasters, Quarterly Journal of Economics, 118, 269-298]. The posterior model probabilities based on the Michigan survey data strongly support the proposed model. We also extend the agent-based epidemiology model by deriving for it a simple adaptation, which is suitable for estimation. Our results show that this model is able to capture the heterogeneity in households’ expectations very well.

Keywords: Inflation expectations; heterogeneous expectations; survey expectations; sticky information; Bayesian analysis (search for similar items in EconPapers)
JEL-codes: C11 C53 C82 D84 E31 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/8663/1/MPRA_paper_8663.pdf original version (application/pdf)

Related works:
Journal Article: A naïve sticky information model of households' inflation expectations (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:8663

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().