On the Epidemiological Microfoundations of Sticky Information*

Ricardo Nunes

Oxford Bulletin of Economics and Statistics, 2009, vol. 71, issue 5, 643-657

Abstract: We estimate and compare two models in which households periodically update their expectations. The first model assumes that households update their expectations towards survey measures. In the second model, households update their expectations towards rational expectations (RE). While the literature has used these specifications indistinguishably, we argue that there are important differences. The two models imply different updating probabilities, and the data seem to prefer the second one. We then analyse the properties of both models in terms of mean expectations, median expectations, and a measure of disagreement among households. The model with periodical updates towards RE also seems to fit the data better along these dimensions.

Date: 2009
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