BEHAVIORAL UNDERPINNINGS OF OVERREACTION IN INFLATION EXPECTATIONS ACROSS ECONOMIC AGENTS
Résumé
This paper explores overreaction to news in agents’ inflation expectations—households, firms, professional forecasters, policymakers, and participants to experiments—and examines the role of four behavioral factors: recency bias, memory of inflation, salience, and the representativeness heuristic. All agent categories show individual overreaction to news, with notable heterogeneity. Salience explains overreaction for most groups. Households exhibit a broad range of biases—recency bias, salience, and the representativeness heuristic—while firms are mainly influenced by salience. Finally, the paper offers insights on the generalizability of experimental inflation expectations.
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