Effects of inflation expectations on macroeconomic dynamics: Extrapolative versus regressive expectations

Marji Lines and Frank Westerhoff

No 68, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

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 (search for similar items in EconPapers)
JEL-codes: C62 C63 E31 E32 (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/38825/1/61492278X.pdf (application/pdf)

Related works:
Journal Article: Effects of Inflation Expectations on Macroeconomic Dynamics: Extrapolative Versus Regressive Expectations (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:68

Access Statistics for this paper

More papers in BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().