Inflation Expectations of Households: Adaptive, Rational, or Sticky? Evidence from an Emerging Market Economy​​

Eddie Boy Fuentes, Mary Kryslette Bunyi and Cherrie Mapa
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Eddie Boy Fuentes: Bangko Sentral ng Pilipinas
Mary Kryslette Bunyi: Bangko Sentral ng Pilipinas
Cherrie Mapa: Bangko Sentral ng Pilipinas

No 202510, BSP Discussion Paper Series from Bangko Sentral ng Pilipinas

Abstract: Understanding the formation of inflation expectations is crucial for monetary policymaking, given that these expectations shape inflation dynamics. Using Bangko Sentral ng Pilipinas (BSP) Consumer Expectations Survey (CES) data, we test whether Filipino households’ inflation expectations can be characterized as adaptive, rational, or sticky. Empirical evidence indicates that households are partly adaptive and not fully rational. However, the survey data are more consistent with the sticky information model, which posits that agents are generally inattentive and infrequently update their forecasts. Results from an epidemiological model, validated using Bayesian posterior estimation, suggest that half of the households retain lagged, previous--quarter expectations; a third follow “rational†professional forecasts; and a fifth update adaptively based on the latest inflation data. We also estimate a state--dependent model, which shows that agents update forecasts more frequently during inflationary periods.

JEL-codes: D10 D84 E31 E58 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2025-11
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Published as BSP Discussion paper No. 2025-10, November 2025

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Persistent link: https://EconPapers.repec.org/RePEc:bhd:dpaper:202510

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