Heterogeneous Beliefs and the Phillips Curve

35 Pages Posted: 19 Jul 2019

Date Written: June 28, 2019


We establish a set of novel empirical facts concerning cross-section distributions of inflation expectations reported in surveys. Almost all the variation in expectations about their mean may be summarized via three factors we call disagreement, skew, and shape. We adopt a functional principal component regression approach to estimating forward-looking models of inflation that exploits the heterogeneity present in individual-level data. By using survey information more effectively, our approach reveals an enhanced role for expectations in inflation dynamics that is robust to lagged inflation, trend inflation, and supply factors. Our findings hold in similar form across two major economies.

Keywords: survey expectations, inflation dynamics, density function, functional regression, functional principal components

JEL Classification: E31, C55

Suggested Citation

Meeks, Roland and Monti, Francesca, Heterogeneous Beliefs and the Phillips Curve (June 28, 2019). Bank of England Working Paper No. 807, June 2019, Available at SSRN: https://ssrn.com/abstract=3422817 or http://dx.doi.org/10.2139/ssrn.3422817

Roland Meeks

University of Essex ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

HOME PAGE: http://www.essex.ac.uk/economics/

Francesca Monti (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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