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Discussion Paper Details

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Title: Models, Inattention and Expectation Updates

Author(s): Raffaella Giacomini, Vasiliki Skreta and Javier Tur�n

Publication Date: December 2015

Keyword(s): Bayesian learning, Disagreement, Expectation formation, Forecast accuracy, Herding, Heterogeneous agents and Information rigidities

Programme Area(s): Monetary Economics and Fluctuations

Abstract: We formulate a theory of expectation updating that fits the dynamics of accuracy and disagreement in a new survey dataset where agents can update at any time while observing each other's expectations. Agents use heterogeneous models and can be inattentive but, when updating, they follow Bayes' rule and assign homogeneous weights to public information. Our empirical findings suggest that agents do not herd and, despite disagreement, they place high faith in their models, whereas during a crisis they lose this faith and undergo a paradigm shift. This simple, "micro-founded" theory could enhance the explanatory power of macroeconomic and finance models.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11004

Bibliographic Reference

Giacomini, R, Skreta, V and Tur�n, J. 2015. 'Models, Inattention and Expectation Updates'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11004