Effects of inflation expectations on macroeconomic dynamics : extrapolative versus regressive expectations
Faculty/Professorship: | Economic Policy |
Author(s): | Lines, Marji; Westerhoff, Frank H. ![]() |
Corporate Body: | BERG (Bamberg Economic Research Group) |
Publisher Information: | Bamberg : opus |
Year of publication: | 2014 |
Pages: | 44 ; Diagramme |
ISBN: | 978-3-931052-76-8 |
Series ; Volume: | BERG working paper series ; 68a |
Source/Other editions: | zuerst erschienen im BERG-Verlag, 2009 |
Year of first publication: | 2009 |
Language(s): | English |
Licence: | German Act on Copyright |
URN: | urn:nbn:de:bvb:473-opus4-33351 |
Abstract: | In this paper we integrate heterogeneous inflation expectations into a simple monetary model. Guided by empirical evidence we assume that boundedly rational agents, selecting between extrapolative and regressive forecasting rules to predict the future inflation rate, prefer rules that have produced low prediction errors in the past. We show that integrating this behavioral expectation formation process into the monetary model leads to the possibility of endogenous macroeconomic dynamics. For instance, our model replicates certain empirical regularities such as irregular growth cycles or inflation persistence. Moreover, we observe multi-stability via a Chenciner bifurcation. |
Keywords: | extrapolative and regressive expectations, dynamic predictor selection, macroeconomic dynamics, nonlinearities and chaos, bifurcation analysis |
Type: | Workingpaper |
URI: | https://fis.uni-bamberg.de/handle/uniba/1437 |
Year of publication: | 21. August 2014 |
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BERG_68_Lines_und_Westerhoffse_A2b.pdf | 1.39 MB | View/Open |

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University of Bamberg