Macro Theory with Measured Expectations

Ralph Luetticke (), Christopher Roth (), Mirko Wiederholt () and Johannes Wohlfart ()
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Ralph Luetticke: University of Tübingen & CEPR
Christopher Roth: University of Cologne, ECONtribute, CEPR, CESifo, Max Planck Institute for Behavioral Economics
Mirko Wiederholt: LMU Munich, CEPR & CESifo
Johannes Wohlfart: University of Cologne, ECONtribute, CESifo, Max Planck Institute for Behavioral Economics

No 414, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: The Lucas critique holds that policy evaluations based on historical correlations can fail because policy changes alter expectation formation. We develop a new approach to monetary policy evaluation that addresses this concern: we elicit expectations under alternative policy scenarios from household surveys and feed these measured expectations into a heterogeneous agent model. The surveys reveal that the response of income and inflation expectations to interest rate changes is state-dependent. Incorporating these expectation differences into the model yields estimates of the effects of policy on aggregate consumption that are statedependent, varying with economic conditions at the time of the policy change.

Keywords: Policy Scenarios; Expectation Formation; Aggregate Consumption; Monetary Policy (search for similar items in EconPapers)
JEL-codes: D12 D14 D83 D84 E32 G11 (search for similar items in EconPapers)
Pages: 88 pages
Date: 2026-06
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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_414_2026.pdf First version, 2026 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:414

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