Heterogeneous beliefs and the Phillips curve

Roland Meeks and Francesca Monti
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Francesca Monti: Université catholique de Louvain, LIDAM/CORE, Belgium

No 3332, LIDAM Reprints CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Heterogeneous beliefs modify the New Keynesian Phillips curve by introducing a term in the cross-section distribution of expectations. To take that model to the data, we develop a novel functional data approach to estimation and inference that accounts for variation in distributions of expectations. We find that this variation may be summarized using a handful of functional factors, and demonstrate their statistical and economic relevance for inflation dynamics. Our results are among the first to highlight the potential benefits to be gained in empirical work from a rigorous treatment of diverse beliefs in the study of macroeconomic outcomes.

Keywords: Inflation dynamics; New Keynesian Phillips curve; Survey expectations; Functional principal components; Functional regression (search for similar items in EconPapers)
JEL-codes: C4 C55 D84 E31 (search for similar items in EconPapers)
Pages: 14
Date: 2025-01-01
Note: In: Journal of Monetary Economics, 2023, vol. 139, p. 41-54
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvrp:3332

DOI: 10.1016/j.jmoneco.2023.06.003

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