Inflation Expectations, Disagreement, and Monetary Policy
Deutsche Bundesbank - Economic Research Centre
Bundesbank Discussion Paper No. 31/2016
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.
Number of Pages in PDF File: 30
Keywords: business cycles, survey data, learning, disagreement, monetary policy
JEL Classification: E52, E31, D83
Date posted: October 5, 2016