Macroeconomic Vulnerability and Disagreement in Expectations

Badarinza, Cristian; Buchmann, Marco

doi:10.2139/ssrn.1968479

Cited by 4 publications

(1 citation statement)

References 37 publications

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“…A recently growing body of literature suggests that individual experiences influence inflation expectation formation-a significant departure from the theoretical assumption that expectations draw from objective evaluations of the economy ("full information rational expectations"). Macroeconomic modeling literature has demonstrated that heterogeneity in consumer expectations can generate over-investment in real assets (Sims, 2009) impact the economy's vulnerability to exogenous shocks (Badarinza & Buchmann, 2011), and make shocks more persistent (Pedemonte et al, 2023).…”

Section: Partisan Perspectives On Inflation: Exploring Bias In Econom...mentioning

confidence: 99%

Partisan Perspectives on Inflation: Exploring Bias in Economic Expectations

Durall

2024

MSJ

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Inflation expectations are important determinants of future inflation and individual consumer behavior. Recent attention has been devoted to individual-level heterogeneity in inflation expectations. I consider political partisanship as a source of heterogeneity and question whether expectations are biased by partisanship. I find that they are, i.e., that individuals from the president’s political party expect lower inflation relative to members of the opposing party (this difference is statistically insignificant during the Bush presidency), and that this result cannot be explained by additional sources of heterogeneity. I also examine whether belonging to the president’s political party affects the rationality of expectations and find, first, that individuals from the president’s political party base their expectations more closely on CPI relative to the opposing party (although this difference is too small to be statistically distinguishable during the Bush and Biden administrations), and second, that members of the president’s party have more accurate expectations.

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Section: Partisan Perspectives On Inflation: Exploring Bias In Econom...mentioning

confidence: 99%

Partisan Perspectives on Inflation: Exploring Bias in Economic Expectations

Durall

2024

MSJ

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Permutation entropies of short‐term interest rates as an early‐warning signal

Lee

Park

2019

International Finance

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This paper proposes a new method for detecting abnormal movements of short‐term interest rates by using permutation entropy (PE) as a complementary early‐warning signal. Empirical results have shown that the PEs of the US T‐Bill rates plunged below the thresholds of normal movements before the ﬁnancial crisis of 2007–2009, and the PE of 3‐month Euribor similarly dropped before the European sovereign debt crisis of 2010. Additionally, it was found that the PEs of spreads of both domestic interest rates and Libors dropped against the US T‐Bill rates below the thresholds in 2005. This evidence could serve as useful information for policymakers in crisis periods.

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Heterogeneous Inflation Expectations and Learning

Madeira

Zafar²

2015

J of Money Credit Banking

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Using the panel component of the Michigan Survey of Consumers, we estimate a learning model of inflation expectations, allowing for heterogeneous use of private information and lifetime inflation experience. Life experience inflation has a significant impact on individual expectations, but only for 1‐year‐ahead inflation. Public information is substantially more relevant for longer horizon expectations. Even controlling for life experience inflation and public information, idiosyncratic information explains a nontrivial proportion of the inflation forecasts of agents. Women, ethnic minorities, and less educated agents have a higher degree of heterogeneity in their idiosyncratic information, and give less importance to recent movements in inflation.

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Macroeconomic Vulnerability and Disagreement in Expectations

Cited by 4 publications

References 37 publications

Partisan Perspectives on Inflation: Exploring Bias in Economic Expectations

Partisan Perspectives on Inflation: Exploring Bias in Economic Expectations

Permutation entropies of short‐term interest rates as an early‐warning signal

Heterogeneous Inflation Expectations and Learning

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