The Formation of Expectations, Inflation, and the Phillips Curve
By Olivier Coibion, Y. Gorodnichenko, Rupal Kamdar. Journal of Economic Literature, 2018
381 citations recorded by the source corpus.
This paper argues for a careful (re)consideration of the expectations formation process and a more systematic inclusion of real-time expectations through survey data in macroeconomic analyses. While the rational expectations revolution has allowed for great leaps in macroeconomic modeling, the surveyed empirical microevidence appears increasingly at odds with the full-information rational expectation assumption. We explore models of expectation formation that can potentially explain why and how survey data deviate from full-information rational expectations. Using the New Keynesian Phillips curve as an extensive case study, we demonstrate how incorporating survey data on inflation expectations can address a number of otherwise puzzling shortcomings that arise under the assumption of full-information rational expectations. (JEL D04, E24, E27, E31, E37)
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/f75e96208b8b430ef4f71dd3db77f0852431d6f6
How researchers see this paper
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In Economics and Econometrics
- Alberto Cavallo
- Y. Gorodnichenko
- Michael Weber
- Olivier Coibion
- Emi Nakamura
- Jón Steinsson
- Francesco D’acunto
- J. Herreño
Citations in the corpus
- Optimal Inflation and the Identification of the Phillips Curve (2019, background): “See Coibion, Gorodnichenko, and Kamdar (2018) for an extensive review of the use of survey expectations in the Philllips curve.”
- Monetary Policy Communications and Their Effects on Household Inflation Expectations (2018, positive): “If their expectations are unresponsive to central bank announcements and communications, as they seem to be (Coibion et al. 2018a, D’Acunto et al. 2018b), then this class of policies cannot be effective.”
- The Slope of the Phillips Curve: Evidence from U.S. States (2020, methodology): “We elaborate on this point in Online Appendix A.10, drawing on results from Adam and Padula (2011) and Coibion, Gorodnichenko, and Kamdar (2018).”
- Inflation Expectations, Learning and Supermarket Prices: Evidence from Survey Experiments (2017, positive): “, Bruine de Bruin, van der Klaauw, and Topa 2011; Malmendier and Nagel 2016). Our contribution to this literature is to design experiments that disentangle these two sources of information frictions, rational inattention and irrational learning, by exploiting variations in stakes (i.e., contexts of ”
- IQ, Expectations, and Choice (2019, positive): “Empirically, subjective expectations display large crosssectional variation and deviate from the rational benchmark (Manski (2004); Coibion et al. (2018)). And, yet, after the rational-expectations revolution, most macroeconomists lost interest in understanding how individuals form expectations unde”