Working Paper: NBER ID: w24987
Authors: Olivier Coibion; Yuriy Gorodnichenko; Saten Kumar; Jane Ryngaert
Abstract: We implement a new survey of firms, focusing on their higher-order macroeconomic expectations. The survey provides a novel set of stylized facts regarding the relationship between first-order and higher-order expectations of economic agents, including how they adjust their beliefs in response to a variety of information treatments and how these adjustments affect their economic decisions. We show how these facts can be used to calibrate key parameters of noisy-information models with infinite regress as well as to test predictions made by this class of models. The survey also quantifies cognitive limits of agents in the form of level-k thinking. We find little evidence that this departure from infinite regress helps reconcile the data and theory.
Keywords: Higher-order beliefs; Expectations; Economic decisions; Survey data
JEL Codes: C83; D84; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| first-order expectations (D84) | higher-order inflation expectations (E31) |
| higher-order information (D83) | belief revision (D83) |
| information treatments (C22) | changes in inflation expectations (E31) |
| changes in inflation expectations (E31) | economic decisions (G11) |
| changes in inflation expectations (E31) | prices and wages adjustment (E64) |