New Keynesian models with sticky prices and rational expectations have a difficult time explaining why reducing inflation usually requires a recession. An explanation for the costliness of reducing inflation is that inflation expectations are less than perfectly rational. To explore this...

Using laboratory experiments within a New Keynesian sticky price framework, we study the process of inflation expectation formation. We focus on adaptive learning and rational expectations contrary to the previous literature that mostly studied simple heuristics. Using a test for rational...

Using a new consumer survey dataset, we document a new dimension of heterogeneity in inflation expectations that has implications for consumption and saving decisions as well as monetary policy transmission. We show that German households with the same inflation expectations differently assess...

Using laboratory experiments within a New Keynesian framework, we explore the interaction between the formation of inflation expectations and monetary policy design. The central question in this paper is how to design monetary policy when expectations formation is not perfectly rational....

This paper compares the behavior of subject' uncertainty in different monetary policy environments when forecasting inflation in the laboratory. We find that inflation targeting produces lower uncertainty and higher accuracy of interval forecasts than inflation forecast targeting. We also...

This paper examines the nexus between news coverage on inflation and households' inflation expectations. In doing so, we test the epidemiological foundations of the sticky information model (Carroll, 2003, 2006). We use both aggregate and household-level data from the Survey Research Center at...