June 29, 2003

Notes: Sticky Information...

Yet another thing for me to add to the "must read" pile...

Disagreement about Inflation Expectations N. Gregory Mankiw, Ricardo Reis, Justin Wolfers | NBER Working Paper No. w9796 | June 2003: Abstract: Analyzing 50 years of inflation expectations data from several sources, we document substantial disagreement among both consumers and professional economists about expected future inflation. Moreover, this disagreement shows substantial variation through time, moving with inflation, the absolute value of the change in inflation, and relative price variability. We argue that a satisfactory model of economic dynamics must speak to these important business cycle moments. Noting that most macroeconomic models do not endogenously generate disagreement, we show that a simple sticky-information' model broadly matches many of these facts. Moreover, the sticky-information model is consistent with other observed departures of inflation expectations from full rationality, including autocorrelated forecast errors and insufficient sensitivity to recent macroeconomic news.

Posted by DeLong at June 29, 2003 07:46 PM | TrackBack

Comments

I think this is the point of Steven Sheffrin's book, *Rational Expectations.* I've read a couple of chapters of *RE* and it's in MY must-read list.

Posted by: James R MacLean on June 30, 2003 12:49 PM
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