‘Heterogeneous beliefs’ can improve models of inflation – BoE paper
Unpacking the “heterogeneous beliefs” inherent in measures of inflation expectations can help to improve models of inflation dynamics, research published by the Bank of England finds.
Heterogeneous beliefs and the Phillips curve, by Roland Meeks and Francesca Monti, breaks down survey measures of inflation expectations into three components, which the authors say can account for much of the variation over time.
The authors distinguish between “disagreement”, “skew” and “shape”, which allows
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