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Inflation Expectations, Disagreement, and Monetary Policy

30 Pages Posted: 5 Oct 2016  

Mathias Hoffmann

Deutsche Bundesbank

Patrick Hürtgen

Deutsche Bundesbank - Economic Research Centre

Date Written: 2016

Abstract

Survey data on inflation expectations show that: (i) private sector forecasts and central bank forecasts are not fully aligned and (ii) private sector forecasters disagree about inflation expectations. To reconcile these two facts we introduce dispersed information in a New Keynesian model, where as a result, inflation expectations differ between the private sector and the central bank. We show that output and inflation responses change markedly when the central bank responds to private sector inflation expectations rather than to their own.

Keywords: business cycles, survey data, learning, disagreement, monetary policy

JEL Classification: E52, E31, D83

Suggested Citation

Hoffmann, Mathias and Hürtgen, Patrick, Inflation Expectations, Disagreement, and Monetary Policy (2016). Bundesbank Discussion Paper No. 31/2016. Available at SSRN: https://ssrn.com/abstract=2848044

Mathias Hoffmann (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Patrick Hürtgen

Deutsche Bundesbank - Economic Research Centre ( email )

Wilhelm-Epstein-Strasse 14
Frankfurt/Main D-60431
Germany

HOME PAGE: http://https://sites.google.com/site/patrickhuertgen/

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