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Inflation under FIRE: Deviations and Explanations

Authors:

Jason Jia ,

London School of Economics and Political Science, GB
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Birce Akay,

London School of Economics and Political Science, GB
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Patrick Leitloff,

London School of Economics and Political Science, GB
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Annie Wang

London School of Economics and Political Science, GB
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Abstract

We examine established empirical evidence on deviations of inflation expectations from the Full-Information Rational Expectations (FIRE) hypothesis. However, these empirical facts offer seemingly contradictory conclusions. We seek to reconcile these findings using a new piece of empirical evidence and a parsimonious model, adapted from the methodology of Angeletos, Huo and Sastry (2020). We confirm that all empirical facts can be explained by a combination of dispersed, noisy information and over-extrapolation.
How to Cite: Jia, J., Akay, B., Leitloff, P. and Wang, A., 2021. Inflation under FIRE: Deviations and Explanations. Rationale, 3, p.21.
Published on 12 Sep 2021.
Peer Reviewed

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