Economics at your fingertips  

A time-varying expectations formation mechanism

Maurizio Bovi ()

Economia Politica: Journal of Analytical and Institutional Economics, 2020, vol. 37, issue 1, No 4, 69-103

Abstract: Abstract We propose an expectations formation mechanism (EFM) aimed to explain the median—hence lay—forecaster’s year-ahead inflation predictions. The EFM is a time-varying combination of long-run expectations, current inflation and uncertainty with weights naively calibrated according to inflation dynamics. Earning fixed income, in fact, the median forecaster has an aversion toward underestimation that increases with inflation. To allow for occasional—albeit unintentional—cost-minimizing calibrations, the EFM nests various forecasting rules. Data from the Michigan Survey of Consumers sustains the argued behavior and contributes to interpret some puzzling price dynamics such as the missing disinflation and reflation.

Keywords: Survey expectations; Inflation; Time-varying parameters (search for similar items in EconPapers)
JEL-codes: C53 C83 D84 E31 E37 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: A Time-Varying Expectations Formation Mechanism (2019) Downloads
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:

Ordering information: This journal article can be ordered from

DOI: 10.1007/s40888-019-00171-7

Access Statistics for this article

Economia Politica: Journal of Analytical and Institutional Economics is currently edited by Alberto Quadrio Curzio

More articles in Economia Politica: Journal of Analytical and Institutional Economics from Springer, Fondazione Edison
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2022-01-09
Handle: RePEc:spr:epolit:v:37:y:2020:i:1:d:10.1007_s40888-019-00171-7