Expectations Of Economic Agents Research Articles

Assessing the predictability of the Bank of Russia decisions on the key rate and informational advantage in its forecasting

The communication policy of central banks plays a significant role in setting the expectations of economic agents. If key rate decisions are inconsistent with market expectations, managing expectations and anchoring inflation expectations may be difficult. We assess the predictability of the Bank of Russia’s key rate decisions over the 2021—2023 period in two ways: using media surveys of analysts and shifts in the Russian government bond index and the daily volatility of its yield. The results show a significant impact of unexpected key rate decisions on Russian government bond prices and daily volatility. Then, using statistical metrics computed from macroeconomic survey data and another linear and piecewise linear model, we find the informational advantage of the Bank of Russia in predicting the key rate. The decisions unexpected for the market are explained by the information advantage of the Bank of Russia, as well as the realization of geopolitical and inflation risks in the period under study. Thus, we conclude that there is a need to improve the quality of communication regarding future decisions. As the communication policy develops, the predictability of the Bank of Russia’s decisions on the key rate will increase. In turn, economic agents and market participants will adapt to the expected decisions in advance, which will accelerate the achievement of the inflation target and the adjustment of inflation expectations.

High-denomination bills or value-adjusted billes? Reprospective analysis of the reform of the congolese range of banknotes in 2012 and lessons to be learned.

In the Congolese collective memory, the injection of new banknotes, especially with high face value, is a harbinger of rampant inflation and a depreciation of the national currency. The unfortunate experiences of the 1990s are at the origin of the psychological equality “big bills = rising prices”. However, the adaptation of the fiduciary range that took place in 2012 showed that the methodical introduction of a new range of paper money can be painless for the economy and provide it with certain advantages. More than ten years after this success, this article reviews the strategies put in place at the time to achieve it. It highlights the consolidation of macroeconomic stability and a communication strategy thanks to which the expectations of economic agents have ceased to be retrospective to become forward-looking.

ВЛИЯНИЕ ИНФЛЯЦИОННЫХ ОЖИДАНИЙ НА ДОЛГОСРОЧНЫЕ ПОСЛЕДСТВИЯ ИНФЛЯЦИИ

In this paper we propose a dynamic general equilibrium model on the basis of Sidrausky's model, which takes into account the process of formation of inflationary expectations by consumers and firms. As a result of the model analysis we obtain that higher expected inflation rate leads to the lower output per employee. The article also provides a comparative characteristics of the impact of the monetary policy on the long-term equilibrium, depending on the formation of inflationary expectations of economic agents and the policy of setting the Central Bank's key rate.

A Study on How an Aging Population Affects the Effectiveness of Fiscal Policy Using an ARDL Model

Purpose - This paper examines the impact of an aging population on fiscal policy efficiency. Two significant issues arise from Korea’s aging population: old age poverty and the sustainability of government debts. As Korea’s demographic trajectory is similar to that of Japan, it is vital to study fiscal soundness and efficiency from various points of view.
 Design/Methodology/Approach - The Autoregressive Distributed Lags (ARDL) - EC model was adopted. ARDL shows statistically robust results when the data are a mixture of stationary at the level or the first difference. The data was downloaded from 1994 to 2019 of five OECD countries; Canada, Japan, Spain, Sweden, and Korea. The country selection followed the regime classification of OECD (2012) based on the labor market structure and redistribution effect after tax.
 Findings - First, the dependency ratio negatively affects the efficiency of fiscal policy. The marginal propensity was suppressed due to the consumption variance in old age cohorts as the dependency ratio increases. Economic agents react to save for future uncertainty when government spending is funded by issuing debt. Second, the long-term elasticities differed among countries, with Korea having the highest at 0.56, followed by Canada at 0.55, Spain at 0.39, and Japan at 0.36.
 Research Implications - Efficiency of fiscal policy is dependent upon the reactions of economic agents. The priority of the government should focus on managing the future expectations of economic agents by implementing structural reforms in the labor market and pension system.

Information policy of the Bank of Russia and the central banks of other countries

Subject. The information policy of the central bank plays an important role in increasing transparency and confidence in the actions of the central bank. It also has a significant impact on the expectations of economic agents. In recent years, the Bank of Russia has taken a number of measures aimed at increasing the transparency of the monetary policy. Its information policy has undergone significant changes due to the transition to the inflation targeting regime in 2014-2015. For a long time, economists and researchers have had controversial opinions about the impact of central banks’ information transparency on the economy. The development of financial institutions, monetary policy instruments, and its goals have created new conditions for and requirements to the regulators’ information policy. Objectives. An original study of the content of the information policy of the Bank of Russia and the central banks of other countries, as well as its evolution stipulated by the transition to the inflation targeting regime, their comparison to determine common or distinctive features. An assessment of their adequacy and whether it is reasonable to adjust the information policy of the Bank of Russia in order to increase its credibility and to stabilise inflation expectations. An analysis of changes in the awareness of the population of Russia about the monetary policy during the period preceding to the complete transition to the inflation targeting regime and at present time. Methodology. In our study, we used the empirical method of comparison and the following theoretical methods: dialectical and the method of analysis and synthesis based on the study of relevant literature dedicated to the topic. MS Excel package was used to analyse and visualise the results. Results. The study involved comparing the communication policy of the Bank of Russia during the period preceding to the introduction of the inflation targeting regime and preparation to it (2012) and after several years of its operation (2021). It also analysed the influence of the expansion of communication channels on the dynamics of expectations of the population of Russia regarding future annual inflation. The communication policies of central banks of other countries targeting inflation were studied and used to develop recommendations on how to improve the effectiveness of the information policy and the monetary policy of the Bank of Russia as a whole. Conclusions. A comparison of information materials of the Bank of Russia for the period preceding to the preparation for the transition to the inflation targeting regime (2012) and the present time (2021) showed that the Bank of Russia increased the number of regularly published information messages and analytical materials by almost 3 times. A comparison of the information policy of the Bank of Russia and central banks of other countries revealed that taken as a whole the number and content of published materials corresponds to generally accepted international standards, including the practice of countries with a longer experience of inflation targeting. Works dedicated to the topic were studied and the benefits of using certain types of communications in other countries were assessed. As a result, recommendations were developed on how to improve the effectiveness of both information policy and monetary policy as a whole.

An assessment on rational expectations and perception engineering in the cyber-capitalist age

In recent years, studies in economics have revealed that analyses in psychology, sociology, religion, and ethics have begun to describe trends in the markets, household preferences, entrepreneurships, and investor decisions. These studies are referred to be results of the critical dynamics put forward by the "Rational Expectations Theory." Although conditional rationality is widely assumed in economic analysis, the assumptions of rational expectations as a unique approach allow for new perspectives of bias on the perception engineering which is being realised through social media for both political or economic operations. Percepion engineering has become easy and widespread in this new age of cyber-capitalism in which artificilal intelligence (AI) based Management Information Systems (MIS) and IoT tend to dominate pervasively for economic, political or religious reasons. This study asserts that investment decisions, political tendencies and economic preferences may not be rational due to exposure to perception engineering through innovative technology of algorithms and social media. Therefore, in today's cyber-capitalist ecosystems, the generation of manipulated social consent has been incredibly enhanced by hacking, collecting, accumulating, changing, controlling, and disseminating information for propaganda and marketing purposes over social media. In this multidiscipinary study, perception engineering that has become a part of artificial intelligence-assisted social engineering processes, is concluded to be the key spoiler of rational expectations of economic agents. In this context, possible measures are developed and suggested.

A hybrid NKPC inflation model for the small Island state of Fiji

This study models (consumer price) inflation for an open small island state of Fiji. We introduce, within a hybrid open-economy version of the New Keynesian Phillips Curve (NKPC) model, the effects of development in the stock market, and frequent sources of economic and political uncertainty on inflation. Using monthly data over the period for the period February 1996 to December 2020, we show that a model with expectations of forward- and backward-looking economic agents alone can explain 85% inflation. Other NKPC variables have explanatory power of 10% boost this to 27% relationships in the hybrid NKPC model. Overall, the study implies that inflation expectations of economic agents, if managed effectively, can avoid persistently high inflation rates.

Міжнародний досвід і впровадження монетарного режиму інфляційного таргетування в Україні

The aim of the article is to study the international experience, the experience of implementing the monetary regime of inflation targeting in Ukraine and formulate conclusions based on the results of the analysis of such implementation. It is determined that the basis of the practice of inflation targeting constitutes the idea that there are exclusively rational (inflationary) expectations of economic entities, which are subject to accurate calculation and influence. However, the presented arguments (the existence of business cycles, criticism from the position of adherers of behavioral economics, asymmetric information in financial markets) give grounds to assert that monetary policy can only preestimate the expectations of economic agents with a certain degree of probability. This explains the lack of an accurate correlation between the change in the central bank’s interest rate and its impact on the inflation rate. Based on the experience of foreign countries, it has been determined that at the first-priority stages of implementation of the studied monetary regime in the analyzed examples, there is a tendency to reduce the level of inflation due to increased requirements for the independence of central banks, their transparency and transparency of the monetary policy. The studied examples of the introduction of the monetary regime of inflation targeting show that the co-dependence of the regulatory influence of central banks and inflationary processes is caused by numerous factors (the formation of the institutional structure, the duration of the fight against inflationary processes, etc.). Further on, crisis situations reveal the peculiarity of the studied monetary regime: central banks do not directly manage inflationary processes, but adapt to them and curb inflation by means of a «soft» adjustment (as evidenced by the constant change in forecast analytics on inflation in future periods). The practice of introducing inflation targeting in Ukraine began in 2015 and there was a tendency to curb inflationary processes (which, in principle, is typical for the first-priority stages of the implementation of this monetary regime in other countries). However, the full-scale invasion of Ukraine by the Russian Federation in February 2022 made it impossible to continue the practice of implementing this monetary regime (due to the abandonment of the floating exchange rate, restrictions on foreign exchange transactions, monetary financing of the budget, etc.), which indicates limited opportunities for inflation targeting in extraordinary (crisis) situations.

Analysis of the influence of heterogeneous expectations of economic agents on the stability of general equilibrium models with an open economy

The purpose of the publication is to study the influence of bounded rationality of agents on the ability of economic authorities to choose alternative policy rules that stabilize the dynamics of the relevant significant macroeconomic variables by simultaneously analyzing the entire range of model parameters. The scientific novelty lies in the fact that models with an open economy are analyzed, in which economic agents interact with the outside world. The article evaluates and compares behavioral neo-Keynesian models obtained with two alternative ways of introducing heterogeneous expectations. It is assumed that agents can be either short-sighted with a short-term forecast, or far-sighted forecasters. The difference does not matter when the agents have rational expectations, but it does matter when some of them form beliefs about the future according to some heuristics. Bayesian estimates based on the data of the Russian economy show that the behavioral model based on short-term forecasts is better in agreement with empirical data than the model based on long-term forecasts and even compared to the model with rational expectations of agents. Stability and stability analysis was carried out using a numerical procedure — Monte Carlo Filtration Mapping (MCF). This procedure generalizes and supplements the results obtained for a more limited set of parameters of low-dimensional models in which agents do not interact with the outside world. MCF-analysis shows that incorporating heterogeneous expectations reduces the stability and robustness of models. At the same time, a model based on predictors of long-term forecasting is less stable compared to models of short-term forecasting and with rational expectations of agents. An important result is a significant proportion of areas with unstable behavior of the studied models with heterogeneous expectations of agents, in which solutions are characterized by an explosive nature. With the help of Smirnov–Kolmogorov statistics, significant parameters were identified that determine the deterministic behavior of all analyzed models. An interesting result is: the response of the interest rate to changes in the output gap and changes in the real effective exchange rate does not affect the deterministic behavior of the models under study. All obtained results are confirmed by a posteriori Bayesian estimates for these parameters. The findings provide guidance to economists who study the processes of expectation formation with the help of microdata.

ВПЛИВ РОСІЙСЬКОЇ АГРЕСІЇ НА ДОЛАРИЗАЦІЮ В УКРАЇНІ

The article is dedicated to the impact of the russian aggression against Ukraine on the dollarization of the Ukrainian economy. Among the reasons for the traditionally high level of dollarization in Ukraine are frequent currency and financial crises with sharp devaluation of hryvnia, distrust in the national currency, the banking system and the economic policy in general, and the lack of structural reforms. Recently, the russian war against Ukraine has become a new key factor. Russian aggression against Ukraine is proposed to be divided into three stages – the beginning of the aggression in 2014–2015; the war in the Eastern Ukraine in 2016–2022; the full-scale invasion since 2022. The dynamics of dollarization in Ukraine in these periods was calculated using the official statistical data of the National Bank of Ukraine and was compared with the dynamics of two main economic factors – the exchange rate and inflation, as well as the key political events of that time. The first stage of the russian aggression is characterized by a significant increase of dollarization, a high devaluation of hryvnia and a high inflation. The second stage showed a gradual decrease of dollarization indicators, a relative stabilization of the floating exchange rate of hryvnia and a decrease of inflation. During the third stage of the russian aggression since 2022 there was a new increase of the dollarization indicators with a consequent decrease due to a fixed exchange rate of hryvnia and an adaptation of business to the conditions of war. So, the russian aggression against Ukraine has a negative impact on the level of dollarization of the Ukrainian economy. However, after stabilization of the exchange rate of hryvnia, we can observe a gradual decline of dollarization. In particular, after the jump at the beginning of the full-scale invasion, the level of dollarization has stabilized and is gradually decreasing in 2023 due to a long-term falling of the inflation rate, an exchange rate stability, significant volumes of international aid received and expected in the future, an adaptation of business to the conditions of war and a stabilization of the expectations of economic agents. The future success of the Armed Forces of Ukraine and the liberation of the occupied territories will have a positive effect on the expectations of economic subjects, and, as a result, on the further gradual decrease of the level of dollarization.

Asymmetric Impact of Geopolitical Risk and Economic Policy Uncertainty on Russian Ruble Exchange Rate

The Russian economy has encountered substantial exchange rate volatility due to many endogenous and exogenous shocks, including the global financial crisis, sanctions, and the COVID-19 pandemic. These exogenous shocks tend to increase economic policy uncertainty, eventually leading to exchange rate fluctuations. In addition, the Russian economy is highly exposed to geopolitical risks, which also reflected in the dynamics of the exchange rate. The hypothesis of the study is that the response of the exchange rate to the positive and negative shocks in geopolitical risk and economic policy uncertainty may be asymmetric because of the expectations of economic agents. Thus, the objective of this study is to assess the asymmetric impact of geopolitical risk and economic policy uncertainty on the Russian exchange rate. As a preliminary analysis, the time series were tested for unit root and cointegration. I apply linear and non-linear autoregressive and distributed lag models (ARDL) that estimate asymmetric impact and provide results in the short and long term. The results of econometric analysis show that geopolitical risk and economic policy uncertainty affect the exchange rate asymmetrically in the short term, while their impact on the exchange rate is symmetric in the long term. In the short term, the exchange rate is more sensitive to negative shocks of geopolitical risk and economic policy uncertainty as compared to positive ones. At the same time, the negative impact of geopolitical risk is smoothed out in the long term. The theoretical significance of the study lies in expanding the standard model of fundamental factors affecting the dynamics of the exchange rate by examining nexus between "unobservable" factors and the exchange rate. The findings make it possible to improve the predictability of the exchange rate, providing valuable policy implications for investors and policy-makers.

Microeconomic analysis of the main ways of decomposition of the cost index

The article considers a microeconomic analysis of the main options for decomposing the value index into price and quantity change factors, as a result of which it becomes possible to interpret these options in terms of changing the expectations of either the consumer or the producer. The purpose of the study is to show that the Laspeyres, Paasche and Fisher indices have not only an estimated, but also an important content function, reflecting changes in the market expectations of economic agents. To achieve the goal, a comparative analysis of the basic formulas of the concepts of adaptive and rational expectations was carried out, as well as a meaningful analysis of the cost aggregates that are components of the Laspeyres, Paasche and Fisher indices, and a schematic diagram of the formation of adaptive and rational expectations was developed. As a methodological basis for solving the problem, the expectation theory, the analogy method, the index method of factor reversibility, and the minimum basis method were used. It is shown that Laspeyres indices are the essence of changes in adaptive expectations, Paasche indices are changes in rational expectations of producers and consumers, and Fisher indices are a joint change in adaptive and rational expectations of economic agents. It is advisable to interpret one of the main methods of decomposition of the cost index into factors as a “buying” method that meets the expectations of the consumer, another — as a “selling” method that meets the expectations of the manufacturer, a decomposition method, the third — as a “compromise” between market expectations of economic agents.

Fisher's hypothesis in time-frequency space: a premier using South Africa as a case study.

Fisher hypothesis is universally accepted as an integral portion of monetary theory and practice, and yet the empirical evidence confirming a full Fisher effect remains scarce and the relationship has been challenged on several theoretical grounds referred to as ‘puzzles’. Our paper suggests the use of continuous wavelet transforms as a unified analytical framework for confronting the different Fisher puzzles in a harmonious way. Taking South Africa as a case study, we focus on the inflation targeting period of 2002:01–2021:02 and use signal-image conversion tools such as wavelet power spectrum, wavelet coherence spectrum and phase-difference dynamics to extract signal features of nominal interest rates and inflation expectations and further explore their dynamic synchronization across a time–frequency plane/domain. Three unique findings emerge from our study. Firstly, across a time domain a full Fisher effect only holds in the pre-financial crisis period. Secondly, across the frequency spectrums, higher frequency oscillations gradually lose relevance to lower frequency oscillations providing evidence of volatility transfer in the Fisher effect. Lastly, the phase-dynamics indicate a consistent positive synchronization throughout the sample period which is line with the traditional Fisher effect. Overall, these findings highlight the success of the South African Reserve Bank in using inflation targeting to steer the expectations of economic agents under the tenures of the last three governors and provide important lessons for other Central banks.

Monetary Policy Under Uncertainty: The Case of COVID-19 Health Crisis in Morocco

The COVID-19 health crisis marked the beginning of a series of shocks that are a source of uncertainty that impacts the decision-making process of central banks around the world. The aim of this paper is to analyze the conduct of Morocco's monetary policy in a context of uncertainty, that of the COVID-19 health crisis. The results of our analysis have shown that in a context of uncertainty, the central bank is called upon to increase its communication to better guide the expectations of economic agents and ensure better transmission of the various monetary policy measures to the real economy. In addition, it must show itself to be credible by transmitting clear signals to restore the confidence of economic agents. However, central bank action alone is not enough. Conditions must be met, on the credit supply and credit demand sides, to remedy the structural imbalances that are holding back the competitiveness of our economy and to counter uncertainty.

Strengthening monetary policy and managing inflation expectations in Ukraine in conditions of maritime

The article considers the current problem of strengthening monetary policy in Ukraine. Competent monetary measures of the NBU in the first months of the war ensured the smooth functioning of the banking system and payments in the economy. Fixing the exchange rate was ensured by currency restrictions, as well as foreign exchange interventions. The gradual adaptation of Ukraine's economy to the war and the replacement of psychological shock by economic logic require a change in approaches to monetary policy.
 The article substantiates the need to strengthen the monetary policy of the NBU. Strengthening the monetary policy of the NBU is aimed at compressing the money supply, and its effectiveness depends on the coordination of measures with the government.
 The way in which inflation expectations are formed influences the consequences of monetary policy. Therefore, the NBU, which aims at price stability, should take into account the inflation expectations of economic agents when planning monetary measures.
 Adaptive and rational hypotheses of inflation expectations are estimated. It is established that the reasons for the differences in the mechanisms of inflation expectations are explained by rational expectations and ways of disseminating information. It is concluded that the main focus in assessing monetary policy is to determine the characteristics of the factors shaping inflation expectations in Ukraine. The NBU can increase the effectiveness of monetary policy by developing and implementing measures to strengthen the impact on inflation expectations of economic agents.

RISKS OF THE BANKING SYSTEM OF UKRAINE IN THE CONDITIONS OF MARTIAL LAW

Introduction. The peculiarities of the manifestations of credit, market and currency risks, liquidity risks and risks of "state failure" for the functioning of the banking system of Ukraine in the conditions of martial law were examined the article. Recommendations are offered for minimizing existing risks and restoring the functionality of the banking system in the context of performing financial intermediation functions. Methods. Traditional methods of scientific knowledge were used in the article. In particular, methods of analysis and synthesis, as well as a graphic method for visualization and comparison of trends of certain indicators, were used to study the main trends of the risks of banking activity under martial law. Methods of generalization and abstraction were used to formulate recommendations for minimizing banking risks during martial law. Results. In the course of the study, it was proved that the credit risk in the conditions of martial law is minimal for the banking system of Ukraine, because as a result of ineffective monetary policy, the credit burden on the national economy is minimal and insufficient for its recovery. The negative impact of currency and market risks on the functioning of the banking system of Ukraine is substantiated. It is proved that due to the use of the monetary regime of inflation targeting, the banking system of Ukraine has lost the ability to implement the investment function and the functions of financial intermediation in general. Disscussion. As a result of the state of war and the negative expectations of economic agents, the short-term deposit base of banks will increase, and the volume of deposits will decrease, which may lead to a liquidity crisis in the banking system, however, the uninterrupted functioning of the banking system of Ukraine in terms of settlement and cash services will be preserved due to the high level of concentration of capital and banking assets owned by the state. In order to minimize the negative impact of banking risks, the NBU should resort to the use of mechanisms for targeted cheap long-term refinancing of banks under specific economic development programs, which will allow restoring the intermediary functions of the banking system. Keywords: credit risk, currency risk, liquidity risk, market risk, “state failure” risk, refinancing, lending, monetary policy.

MONETARY TRAPS OF THE NEW MACROECONOMIC CONSENSUS: PROBLEMS OF STABILIZATION POLICY AFTER COVID-19

The relevance of the study lies in the consideration of transmission channels through which the influence of monetary policy carried out by the governments and central banks of the United States, Japan and Germany was realized. The purpose of the article is to consider the phenomenon of the monetary trap as a special case of an unforeseen macroeconomic reaction to the stabilization anti-crisis policy pursued by the state, which is designed to stimulate economic activity and contribute to the growth of aggregate output. The article identified the potential of economic theory (with an emphasis on the New Macroeconomic Consensus) to illuminate the current practice of state stabilization policy, taking into account new historical challenges, as well as modeling the impact of monetary instruments of stabilization policy on the potential for economic recovery of the United States, Japan and Germany. To achieve the goal of the study, scientific and special research methods were used, namely: methods of analysis, abstraction and synthesis, induction and deduction, as well as a system-structural method; hypothetical-deductive method; idealization method; methods of economic and mathematical modeling. An analysis of the consequences of the state policy to counteract the downturn in the economic situation as a result of the COVID-19 pandemic made it possible to periodize it and establish that the stabilization measures at the first stage were mainly of a fiscal nature, while at the second stage they were focused on monetary containment of the volatility of commodity prices. A regression express analysis of the relationship between monetary incentives and changes in GDP and inflation in the United States, Japan, and Germany made it possible to establish that the influence of monetary impulses on price stability manifests itself over a longer period of time and depends on the influence of many factors, including price fluctuations, changes in nominal wages, exchange rate dynamics and expectations of economic agents.

The Impact of the COVID19 Pandemic on the Credit Market in Poland

Purpose: The paper aims to evaluate the impact of the COVID-19 pandemic on the credit market in Poland. Design/Methodology/Approach: The evaluation of the outcomes of the pandemic on different segments of the credit market in Poland. Findings: The pandemic of COVID-19 had a significant impact on the credit market in Poland. The rise in risk in the economy due to pandemic restrictions on economic activity prompted commercial banks to tighten their lending standards and terms. Demand for credits was affected by the drop in investment and the negative future expectations of economic agents. The central bank eased its monetary policy considerably at the beginning of the pandemic, what with the parallel decrease in credit demand caused the gradual fall in interest rates. Although hugely lower interest rates, the value of credits financing activity of enterprises and households’ consumption remained below the 2019-year level. What is worth noting, except for the first months of the pandemic, the trends in the value of the new corporate and consumption credits were like trends in the previous year. In the period December 2019 to the end of January 2021, the debt of non-financial agents in total increased by approximately 0.9%. However, it stemmed only from the growth of debt from real estate credits. The debt due to the other credits decreased. The highest drop occurred in the micro-enterprise sector. Practical Implications: Assessment of the response of credit market participants, banks and borrowers in the main segments of the credit market to challenges the economy faces due to the COVID-19 pandemic. Originality/Value: To identify and evaluate the effects of the pandemic on the credit market in Poland, the analysis of monthly data was carried out.

Inflation expectations quantification with fuzzy control system

The inflation expectations of economic agents are one of the most important variables for central banks and monetary policy conduct, but such expectations are not directly observable. Consumers’ expectations are examined in qualitative surveys. The key task is to transform consumers’ survey responses into quantitative proxies of expectations. In this examination, we investigate an alternative method to quantify consumers’ inflation expectations using fuzzy rule-based systems. In order to generate rules in the learning phase, we compare two methods: the Wang-Mendel method based on space partition and the subtractive clustering method. The learning data are information about past inflation and consumers’ opinions as expressed in surveys. The system is built and tested on data from January 2002 to June 2019 for non-euro member states of the EU. The fuzzy rules-based system returns results that outperform a benchmark—the standard quantification procedure—in terms of correlation with a raw approximation of consumer expectations, which is survey balance statistics. The results are robust regarding the benchmark choice. We find the method more promising for economies with lower stability, as it gives more room for the training phase of the algorithm application.

Do You Know that I Know that You Know…? Higher-Order Beliefs in Survey Data

AbstractWe implement a new survey of firms, focusing on their higher-order macroeconomic expectations. The survey provides a novel set of stylized facts regarding the relationship between first-order and higher-order expectations of economic agents, including how they adjust their beliefs in response to a variety of information treatments. We show how these facts can be used to calibrate key parameters of noisy-information models with infinite regress as well as to test predictions made by this class of models. We also consider a range of extensions to the basic noisy-information model that can potentially better reconcile theory and empirics. Although some extensions like level-k thinking are unsuccessful, incorporating heterogeneous long-run priors can address the empirical shortcomings of the basic noisy-information model.