Myopia and Anchoring
We consider a stationary setting featuring forward-looking behavior, strategic complementarity, and incomplete information. We obtain an observational equivalence result that recasts the aggregate dynamics of this setting as that of a representative-agent model featuring two distortions: myopia, as in models with imperfect foresight; and anchoring of the current outcome to the past outcome, as in models with habit persistence and adjustment costs. We further show that the as-if distortions are larger when the general-equilibrium feedback, or the strategic complementarity, is stronger. These results offer a fresh perspective on the observable implications of informational frictions; build a useful bridge to the DSGE literature; and help reduce an uncomfortable gap between the prevailing structural interpretations of the macroeconomic time series and the related microeconomic evidence. Finally, an empirical evaluation is offered in the context of inflation, wherein it is shown how our results can rationalize existing estimates of the Hybrid NKPC while also matching survey evidence on expectations.
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Document Object Identifier (DOI): 10.3386/w24545