Macro Theory with Measured Expectations

Ralph Luetticke, Christopher Roth, Mirko Wiederholt and Johannes Wohlfart

No 12715, CESifo Working Paper Series from CESifo

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 state-dependent, 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)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12715

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