Raf Wouters (National Bank of Belgium): Adaptive learning and survey expectations of inflation
Co-author: Sergey Slobodyan
The use of survey information on inflation expectations as an observable in a DSGE model can refi ne substantially the identi cation of the shocks that drive the inflation process. An optimal integration of the survey information improves the model forecast for both inflation and the other macroeconomic variables. Models with expectations based on an Adaptive Learning setup can exploit the survey information more effi ciently than their Rational Expectations counterparts. The resulting time-variation in the perceived inflation target, persistence and shock sensitivity provides a rich description of the joint dynamics in realized and expected inflation.
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