Expectation Formation Research Articles

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.

Inflation as a 'bad', Heuristics and Aggregate Shocks: New Evidence on Expectation Formation

Inflation as a 'bad', Heuristics and Aggregate Shocks: New Evidence on Expectation Formation

ECB-(RE)BASE: Heterogeneity in Expectation Formation and Macroeconomic Dynamics

ECB-(RE)BASE: Heterogeneity in Expectation Formation and Macroeconomic Dynamics

Trend, Cycle and Expectation Formation

Trend, Cycle and Expectation Formation

Unraveling the Dynamics of Inflation Persistence: A Long-Memory Analysis of Headline Inflation Convergence and Divergence in European Economies

This comprehensive study delves into the Harmonised Consumer Price Index (HCPI) behavior across European economies from the early 2000s to the post-pandemic period. By analyzing the patterns of convergence and divergence in HCPI persistence, the study aims to uncover the common external and country-specific factors driving these dynamics. Utilizing the local Whittle estimation method, the research examines the long-memory properties of headline inflation through monthly data from January 1996 to January 2023. The study expands upon existing knowledge of inflation persistence by exploring its changes and the various patterns of inflation persistence in Europe. The findings reveal significant differences in the persistence of inflation and the underlying factors behind it. As such, the study emphasizes the need for tailored policy approaches and a deeper understanding of inflation's true nature, expectation formation, price-setting behavior, and monetary policy in shaping inflation persistence. Given its important policy implications, this research is highly relevant to the European Central Bank (ECB) and national governments within the Eurozone.

Peculiarity of Behavior of Economic Agents under Cognitive Constraints in a Semi-Open New Keynesian Model

The aim of the paper is to analyze changes and peculiarities of behavior of economic agents with bounded rationality in the New Keynesian model, in which imported equipment and technology are one of the factors of production, and households consume only domestic products. The formation of output gap and inflation expectations by agents is based on stationary values of these variables and on extrapolation of the latest available data on inflation and the output gap. The weight shares of agents applying these rules change endogenously. Histograms of the frequency distribution of the degree of buoyancy and the impulse responses of monetary policy shocks and technology shocks to the variables under study show that a less open economy tends to go through an economic cycle with a smaller amplitude than a more rigid economy. Analyses of the trade-offs between the volatility of inflation and the output gap at different parameter values in the Taylor rule show their non-linear nature (in contrast to standard models with rational expectations). An important result obtained in this analysis is that the rational expectations hypothesis is more consistent with a closed economy than with an open one.

Does Economic Literacy Affect Inflation Expectations? An Experimental Survey Approach

This study investigates the effectiveness of the information treatment in the inflation expectations on individuals with varying levels of economic literacy. In this regard, we conducted an experimental survey that provided participants with information related to inflation and other macroeconomic variables. The study reveals that the information treatment was effective in assisting the participants revise their expectations closer to actual inflation. Notably, this was especially effective for those without an economics background as they revised it to align with the actual inflation. Additionally, we found that formal economics learning is insignificant in the formation of inflation expectations given that the relevant information is accessible. Results of the study shed light on the importance of addressing information friction, focusing on financial education and effective communication from central banks.

What Do (and Don't) Forecasters Know About U.S. Inflation?

AbstractThis paper contributes to and extends our current understanding of information frictions in expectations. I first propose a new framework for estimating noisy information using individual forecasts. I further extend this framework to incorporate misperceptions on the part of economic agents about the persistence of the underlying process being forecasted. Applying this framework to the U.S. inflation, forecasts of professional forecasters suggest a systematic overestimation on the part of forecasters of the persistence of inflation in addition to the presence of noisy signals. Using a structural model that incorporates both noisy signals and misperceptions of persistence, I quantify the relative importance of each channel in accounting for the expectations formation process of these agents. The results indicate that, even for professional forecasters, there are multiple forces that generate economically significant deviations from full information.

Ordering the past, envisioning future(s): How review articles in synthetic biology make use of heterogeneous expectations

This article deals with expectation dynamics in the field of synthetic biology. The article draws on scholarly review articles as the main material, complemented by expert interviews conducted with scholars from the field. The aim is to explore how expectations change over time and how they are used to justify and move the field. Drawing from conceptual advances of the sociology of expectations, I show how expectations are increasingly linked at different levels (the landscape, sector, and niche level) and how they support and justify the field among different audiences. The analysis shows that, while in the early period expectations supported different innovation paths and communities (such as chemical biology, protocell research, as well as bioengineering), bioengineering becomes the dominant representation in the second period. Linkages between expectation levels increase the relevance of bioengineering concepts, while the history type of review articles link bioengineering’s past with the future of the field. Interviews and complementary material reveal that this reflects changes in the community as well as in the policy realm. Based on the material, it is argued that review articles can play a role in the formation of collective expectations and in the construction of scientific collectives, such as synthetic biology.

Explaining persistent disparities in educational achievement: a comparative study of Yi minority and Han majority in China

ABSTRACT This study proposes a patterned explanation for the unequal educational achievement between Yi and Han students in China. Family backgrounds, school settings, educational expectations and aspirations are examined when investigating ethnic gaps in educational achievement. Evidence suggests significant impact of family backgrounds in shaping educational gaps, especially for the Han group. When intersecting with educational expectations, family backgrounds are more restrictive in Han students’ formation of expectations. Comparatively, educational aspirations are less restricted by family backgrounds and are strong factors in affecting Yi students’ achievement. Moreover, educational aspirations have a stronger effect on both Han and Yi students’ achievement compared to educational expectations. However, school settings when intersecting with family backgrounds are significant only in Yi students’ achievement. These findings contribute to international debates on the importance of family backgrounds, educational expectations and aspirations, and provide hints to better explain the persistent ethnic gaps in educational achievement in China.

Prioritizing beliefs and the formation of expectations

AbstractHow do expectations for novel opportunities—like Amazon from the perspective of 1998—come about? To form such expectations, decision‐makers need to derive plausible conclusions that go beyond the available information by interpreting it with the help of theories. I explain why asymmetric expectations among rational individuals can exist, even when information is symmetric: Differences in the willingness to question of (defined as “a preference ordering over”) elementary theoretical explanations of the novelty bring about heterogeneity in final expectations. I further argue that one source of better expectations is the skill to choose the relative willingness to question beliefs and thus the skill to integrate theories. I identify the skills of decision‐makers to detect and resolve inconsistencies and to decide when to give up beliefs again as sources of advantages in forming expectations.

Risk Management, Expectations and Global Finance

Abstract What impact do past experiences have on the expectation formation of banks? This article analyses the risk management of Germany’s largest bank during the 1970 and 1980s. In this period, financial deregulation and globalization increased the likelihood of credit defaults and forced banks to implement new strategies of risk assessment. The Herstatt failure of 1974 triggered a series of new regulations, partly based on initiatives of the banks themselves. After the sovereign debt crisis of the 1980s, banks introduced a comprehensive strategy of country-risk assessment. They systematically professionalized their information resources and integrated risk and liability management. Economic forecasting was often based on historical data used for the classification and diversification of risks. However, learning from past experiences had limitations, as recent events were often overrated. This had the effect that the banks’ country risk assessment focused mainly on developing countries while the industrial world was not included in the schemes. This might explain why many banks have continually underestimated the financial risks present in developed countries since the 1990s.

The Impact of Credit Market Sentiment Shocks

AbstractThis paper investigates the role of credit market sentiment and investor beliefs in credit cycle dynamics and their transmission to businesscycle fluctuations. Using U.S. data from 1968 to 2014, we find that credit market sentiment is indeed able to detect asymmetries in a small‐scale macroeconomic model. An unexpected credit market sentiment shock has different impacts in an optimistic and pessimistic credit market environment. While an unexpected movement in the optimistic regime leads to a rather muted impact on output and credit, we find a significant negative impact on these variables in the pessimistic regime. The findings highlight the relevance of expectation formation mechanisms as a source of macroeconomic instability.

Expectation Formation with Correlated Variables

Abstract We experimentally study how people form expectations about correlated variables. Subjects forecast a time-series variable A. In treatment Baseline, subjects only observe past values of A. In treatment Correlated, they additionally observe a correlated variable B; A is equally predictable and has the same univariate properties in both treatments. Subjects are significantly less accurate and underreact more in Correlated, inconsistent with Bayesian learning. A structural-model estimation indicates that subjects (i) underestimate the level of correlation and (ii) are insensitive to actual correlation. Our study provides first direct evidence of correlation neglect in the domain of expectation formation.

Incorporating Diagnostic Expectations into the New Keynesian Framework

Abstract Diagnostic expectations constitute a realistic behavioural model of inference. This paper shows that this approach to expectation formation can be productively integrated into the New Keynesian framework. Diagnostic expectations generate endogenous extrapolation in general equilibrium. We show that diagnostic expectations generate extra amplification in the presence of nominal frictions; a fall in aggregate supply generates a Keynesian recession; fiscal policy is more effective at stimulating the economy. We perform Bayesian estimation of a rich medium-scale model that incorporates consensus forecast data. Our estimate of the diagnosticity parameter is in line with previous studies. Moreover, we find empirical evidence in favour of the diagnostic model. Diagnostic expectations offer new propagation mechanisms to explain fluctuations.

The Mediating Role of Public Identity in the Relationship Between Social Media Service Quality and Visitor’s Satisfaction in Palace Museum, China

Purpose: This study presented the incorporation of social media platforms within cultural institutions has brought about a paradigm shift in the manner in which museum visitors interact with their surroundings, thereby facilitating enhanced accessibility to exhibits and cultivating immersive and participatory encounters. The present study aims to explore the implications of social media usage habits and social media usage behaviour on visitor satisfaction within the renowned Palace Museum in China with the present of mediating factor of public identity.
 
 Theoretical framework: This study aims to contribute to the existing body of knowledge by conducting a comprehensive analysis of visitor perceptions and interactions with the social media offerings of the Palace Museum. By examining the influence of social media usage habits and social media usage behaviour on visitor satisfaction, this research seeks to provide valuable insights that can be utilised to enhance the digital museum experience.
 
 Design/methodology/approach: The main research methods adopted in this paper is questionnaire survey. The questionnaire items designed in this study. The questionnaire is mainly designed from the perspective of tourist experience. This paper uses PLS-SEM statistical software to test the reliability analysis of each measurement variable of the questionnaire and carries out cumulative analysis of variance for these measurement variables. PLS-SEM is used to analyse the factors, and the relevant factors and fitting indexes are obtained.
 
 Findings: The attribution of the substantial influence of tourist satisfaction to both the habits of tourist social media usage and their behaviour in utilising social media can be ascribed to a confluence of psychological, social, and informational factors. This discourse explores the rationales behind the pivotal role played by these dual facets of social media involvement in shaping the overall contentment of tourists.
 
 Research, Practical & Social implications: The present framework offers valuable insights into the intricate dynamics that exist between one's virtual presence and their tangible experiences, particularly in the realm of contemporary travel. Through the strategic utilisation of these mechanisms, social media exerts a profound impact on the formation of tourists' expectations, the unfolding of their experiences, and the subsequent reflections thereof, thereby exerting a discernible influence on their overall satisfaction with their travel endeavours.
 
 Originality/value: The study provides valuable insight on the global trend of museums embracing digitalization, the present study provides valuable insights into the optimisation of social media strategies. By focusing on the Palace Museum and its broader implications, this research aims to enhance visitor encounters by fostering greater fulfilment and engagement.

Re-Examining the South African Reserve Bank’s Policy Reaction Function Using the NARDL Model

The 3–6 percent inflation target is a policy rule used by the South African Reserve Bank (SARB) to fulfil its statutory obligation of ensuring a low and stable inflation environment and its policy reaction function assesses how the Reserve Bank responds to deviations of inflation from its target. We rely on nonlinear autoregressive distributive lag (NARDL) models to estimate the asymmetric preferences which the Reserve Bank has to inflation deviations during rising and falling episodes of inflation. Using quarterly data spanning from 2002:q1 to 2021:q4, we estimate the policy reaction functions using 7 disaggregated measures of inflation to capture the heterogeneity in the formation of price expectations. We further segregate our data into two sub-periods, corresponding to the pre-crisis and post-crisis era, as a robustness exercise. Overall, our findings indicate that in the post-crisis era the SARB (i) has become more responsive to inflation, output fluctuations and exchange rates and (ii) has responded more aggressively to rising inflation than falling inflation.

Leadership Positions and Leadership Types in Work Setting: The Role of Gender

Introduction: Leadership is a multifaceted and socially driven phenomenon that manifests in diverse contexts, most notably within professional work. The research has focused on examining the impact of racial discrimination on the assumption of leadership roles inside the workplace. Objective: This study aims to investigate the workplace challenges associated with the identification of appropriate candidates for leadership roles, with a specific focus on the influence of gender in this process. Additionally, an examination was conducted to investigate the impact of various leadership styles on the performance of individuals in the workplace. Method: The present study comprehensively examines the scholarly works published between 2019 and 2023. The selection criteria employed in this study encompassed the requirement for articles to be written in English, possess a substantial connection to the subject domain of leadership, and be grounded in either quantitative or qualitative research methodologies. Following a comprehensive and rigorous assessment of the articles, 12 were incorporated into the study. Findings: The existing research on diverse leadership styles and their relationship with gender is quite scarce. Our study encompasses twelve publications, with five studies explicitly focusing on various leadership styles and the remaining seven articles examining the impact of gender on leadership. Gender discrimination plays a role in influencing the selection of specific individuals for advancement to higher positions. The gender of their supervisor might influence the perception of leadership actions among subordinates. In general, existing data indicates that gender biases and stereotypes persistently influence the formation of perceptions and expectations around leadership positions. Nevertheless, there are signs of shifting gender perceptions and diminished gender biases inside leadership positions. The significance of supervisors and their assistance in cultivating leadership aspirations is paramount. The promotion of gender equality in leadership roles necessitates the recognition and rectification of gender prejudices, hence underscoring the need to challenge and overcome such biases.

Testing for SES differences in the responsiveness of educational expectations in a twin design.

In this article I test whether students' educational expectations respond to prior academic performance and whether this responsiveness varies by socio-economic status (SES). The responsiveness of high-SES students' expectations may be lower as suggested by the compensatory advantage mechanism or higher because of alienation processes of low-SES students. However, the association between achievement and expectations may be in part spurious because of unobserved social and genetic confounders. This issue is largely ignored by previous research. Therefore, in this paper I estimate behavioral genetic twin models that take into account the possible confounding of the responsiveness of expectations to performance by unobserved genetic and social influences. While students' expectations respond to prior performance, this responsiveness is reduced by more than half once unobserved genetic and social confounders are accounted for. Also, SES differences in responsiveness to performance are completely accounted for by high-SES students' expectations being less responsive to prior levels of cognitive ability. So, this study shows the relevance of taking different types of confounding into account when studying the formation of educational expectations.

Uncertainty, imperfect information, and expectation formation over the firm’s life cycle

Using a long panel data set on Japanese firms, we find that firms make more precise forecasts and less autocorrelated forecast errors as they gain more experience. Then, we build a firm dynamics model where firms gradually learn about their demand by using a noisy signal. Using expectations data over time, we cleanly isolate the learning mechanism from other mechanisms and find that it accounts for 20%–40% of the overall decline in forecast errors over the life cycle. Productivity gains from removing information frictions range from 3% to 12%, with firm entry and exit playing prominent roles.