Essays on expectation formation, inflation dynamics, and monetary policy
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Date
2011-12-15
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Abstract
This thesis presents five essays that compare rational-inattentiveness models
and sticky-information models with rational-expectations models in several
respects. Assumptions about rationality in both types of models are tested
for, implications derived from rational-inattentiveness models are investigated,
models' accuracies are evaluated, predicted information acquisition behavior
is tested, and assumptions about information costs are inspected.
Chapter 2 presents an empirical test of the two different concepts of rationality
underlying rational-expectations models and rational-inattentiveness
models. The results support the concept used in rational-inattentiveness models.
Chapter 3 tests implications of rational-inattentiveness models with respect
to forecasting macroeconomic variables. Rational-inattentiveness models predict
a negative correlation between the amount of news and the forecast deviation.
A negative correlation between news coverage and forecast deviation
occurs empirically for inflation whereas a positive correlation is found in the
context of unemployment.
A comparison between the sticky-information and the sticky-price Phillips
curve is made in Chapter 4. The overall results of the empirical performances
allow no clear distinction between the two concepts. However, if one is predominantly
interested in matching unconditional moments of inflation dynamics,
sticky prices should be used. Researchers who focus on co-movements of inflation
with demand will obtain better results applying sticky information.
In Chapters 5 and 6, the information acquisition behavior predicted by
rational-inattentiveness models and the assumptions about information costs
in these models and in rational-expectations models are tested in an experimental
environment. The overall results in Chapter 5 indicate that the prediction
of information acquisition derived from rational-inattentiveness models cannot
be rejected. The analysis in Chapter 6 shows that assumption about information
costs of the rational-inattentiveness models cannot be rejected in contrast
to the assumptions in rational-expectations models.
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Keywords
Expectations, Experiment, Phillips curves, Rational inattention, Sticky information