NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Myopia and Anchoring

George-Marios Angeletos, Zhen Huo

NBER Working Paper No. 24545
Issued in April 2018, Revised in October 2018
NBER Program(s):Asset Pricing Program, Economic Fluctuations and Growth Program, The Monetary Economics Program

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

 
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