| Title | Inspecting the Mechanism of Diagnostic Expectations: An Analytical Approach |
| Date | October 21, 2024 (Monday) 10:40-12:10 |
| Location | 12th Floor Discussion Room (Building 3) |
| Abstract | In line with recent surge of behavioral economics, the diagnostic expectations (DE) paradigm has been adopted by many papers in macroeconomic and international literature: Under DE, new information influences expectations more strongly than under rational expectations. This paper contributes to a better understanding of diagnostic expectations by analytically solving some dynamic models. It starts with a canonical adjustment cost model to illustrate ways to deal with endogenous variables appearing in leads and lags. We also discuss a DE model with nominal rigidities—when prices are predetermined one period in advance—and show that the model builds in a moving-average behavior. |
| Paper | Paper File |
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| Note |