Differential Interpretation Of Information In Inflation Forecasts
Eugene Kandel () and
The Review of Economics and Statistics, 1999, vol. 81, issue 2, 217-226
We test the hypothesis associated with a standard assumption in the theoretical literature on learning: that economic agents interpret information identically. We use a data set based on a survey of Israeli business executives forecasting future inflation. One of the main advantages of using this data is that a major change in the inflation regime in 1985 can be treated as a natural experiment in new beliefs formation. We develop a methodology for testing this hypothesis and find evidence that is inconsistent with the identical-interpretation hypothesis, but is consistent with the proposed alternative. © 1999 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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