Inflation Expectations in a Limited Rationality Environment: a discrete choice approach
DOI:
https://doi.org/10.1590/0101-41614731hajKeywords:
Heterogeneous inflation expectations, Dispersion in cognitive abilities, Agent-based computational modelsAbstract
We propose a discrete (ternary) choice model to study the frequency distribution of inflation predictors. In every reappraisal period of the foresight strategies, each agent chooses only one among three predictors (naive, adaptive and VAR) to forecast the monthly inflation rate. The
predictor selection process is modeled as a discrete choice dynamics based on two attributes, namely, accuracy less the average cost predictor (private attributes) and dispersion in cognitive abilities. The calibrated agent-based computational model shows that heterogeneity in inflation expectations is persistent, that is, less accurate predictors coexist with the most accurate
predictor due to the dispersion in cognitive abilities of agents.
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Copyright (c) 2017 Helberte João França Almeida, Jaylson Jair da Silveira
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