Record Details

Anchoring of Expectations: The Role of Credible Targets in a Game Experiment

Journal of Economic & Financial Studies

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Field Value
 
Title Anchoring of Expectations: The Role of Credible Targets in a Game Experiment
 
Creator Herzog, Bodo
 
Subject Finance
Central Banking, Experimental Evidence, Guessing Game, Inflation Expectations.
C91, C92, D81, D84, E31, E52.
 
Description This paper provides new evidence on the formation and anchoring of inflation expectations. I conduct a game experiment and analyze the adjustment as well as the impact of credible targets on expectations. In addition, I evaluate the idiosyncratic determinants on the formation of expectations. The analysis reveals six results: First, I find evidence that long-term inflation expectations are firmly anchored to a credible target. Second, a temporary deviation due to unexpected monetary policy might trigger a decline in credibility, and third a de-anchoring of expectations due to uncertainty. Fourth, I find that people change their expectations little if a credible target exists. Fifth, expectations exhibit a large degree of time-variance only in environments without a target. Sixth, the dynamic adjustment to an ‘incomplete’ equilibrium, which is theoretically unstable, is nevertheless rapid and persistent in case of credible targets. All in all, I demonstrate a unique game setup with contributions to both experimental and monetary economics.
 
Publisher LAR Center Press
 
Contributor —
 
Date 2015-10-28
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://journalofeconomics.org/index.php/site/article/view/169
10.18533/jefs.v3i6.169
 
Source Journal of Economic & Financial Studies; Vol 3, No 06 (2015): December; 01-15
2379-9471
2379-9463
 
Language eng
 
Relation http://journalofeconomics.org/index.php/site/article/view/169/270
 
Rights Copyright (c) 2015 Bodo Herzog
http://creativecommons.org/licenses/by/4.0