BEHAVIORAL UNDERPINNINGS OF OVERREACTION IN INFLATION EXPECTATIONS ACROSS ECONOMIC AGENTS

Camille Cornand (), Paul Hubert and Rose Portier ()
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Camille Cornand: CNRS - Centre National de la Recherche Scientifique, GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique
Rose Portier: Centre de recherche de la Banque de France - Banque de France, UP1 - Université Paris 1 Panthéon-Sorbonne

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Abstract: This paper explores overreaction to news in agents' inflation expectations—households, firms, professional forecasters, policymakers, and participants to experiments—and examines the role of four behavioral factors: recency bias, memory of inflation, salience, and the representativeness heuristic. All agent categories show individual overreaction to news, with notable heterogeneity. Salience explains overreaction for most groups. Households exhibit a broad range of biases—recency bias, salience, and the representativeness heuristic—while firms are mainly influenced by salience. Finally, the paper offers insights on the generalizability of experimental inflation expectations.

Keywords: Information frictions; Experimental forecasts; Survey forecasts; Central bank forecasts. (search for similar items in EconPapers)
Date: 2025-06-27
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