The Behavioral Economics of Inflation Expectations
Macroeconomics Meets Psychology

A behavioral approach to modeling macroeconomic expectations.

Tobias F. Rötheli (Author)

9781108482851, Cambridge University Press

Hardback, published 13 August 2020

243 pages, 31 b/w illus.
15 x 23.5 x 2 cm, 0.5 kg

'Rötheli's theory of expectations heads deep into the wilderness by taking cognitive sciences as the first principles. The book is very well-written and expertly guides the reader through Rötheli's paradigm for how people form expectations and impact the economy, inflation, and interest rates … the book is thought provoking, with a novel look at a critical topic in economics.' William Branch, Journal of Economic Literature

As one of the first texts to take a behavioral approach to macroeconomic expectations, this book introduces a new way of doing economics. Rötheli uses cognitive psychology in a bottom-up method of modeling macroeconomic expectations. His research is based on laboratory experiments and historical data, which he extends to real-world situations. Pattern extrapolation is shown to be the key to understanding expectations of inflation and income. The quantitative model of expectations is used to analyze the course of inflation and nominal interest rates in a range of countries and historical periods. The model of expected income is applied to the analysis of business cycle phenomena such as the great recession in the United States. Data and spreadsheets are provided for readers to do their own computations of macroeconomic expectations. This book offers new perspectives in many areas of macro and financial economics.

1. Patterns and expectations
2. Extrapolation and expectations
3. Eliciting expectations under laboratory conditions
4. Features of the laboratory data
5. Similarity matching and scaling the experimental data
6. Pattern extrapolation and expectations measured by consumer surveys
7. Heterogeneity and uncertainty of inflation expectations
8. Inflation dynamics
9. Explaining the course of interest rates
10. Generalizing the pattern-based approach
11. A detour to income expectations
12. The Fisher effect in historical times
13. Expectations of high inflation
14. The Fisher effect in Asian economies
15. The Fisher effect in African economies
16. Estimates of expected inflation for major economies
17. Estimates of expected real interest rates for major economies
Epilogue.

Subject Areas: Behavioural economics [KCK], Economic statistics [KCHS], Econometrics [KCH], Monetary economics [KCBM], Macroeconomics [KCB], Economics [KC], Economics, finance, business & management [K]