We investigate how non-specialists form inflation expectations by running an experiment using a basic Overlapping Generations (OLG) model. The participants of the experiment are students of the University of Amsterdam, who predict inflation during 50 successive periods and are rewarded based on...

Expectations play a crucial role in modern macroeconomic models. We consider a New Keynesian framework under a behavioral model of expectation formation and under rational expectations. Contrary to the rational model, the behavioral model predicts that inflation volatility can be lowered if the...

The recent macroeconomic literature stresses the importance of managing heterogeneous expectations in the formulation of monetary policy. We use a simple frictionless DSGE model to investigate inflation dynamics under alternative interest rate rules when agents have heterogeneous expectations...