Inflation expectations of households and firms are central determinants in all dynamic macro models. Yet, empirical evidence suggests these decision makers form expectations in a way that deviates from the assumptions in these models: on average, inflation expectations are biased upwards, are...

This brief examines two issues of current interest concerning inflation: (1) whether "well-anchored" expectations will help to restrain inflation's decline and whether an "un-anchoring" of expectations could lead to undesirably high inflation and (2) to what extent output (or utilization) gaps...

This paper employs a Zero Lower Bound (ZLB) consistent shadow-rate model to decompose UK nominal yields into expectation and term premia components. Compared to a standard affine term structure model, it performs relatively better in a ZLB setting and effectively captures the countercyclical...

Many studies documented that actual asset-price movements exhibit momentum and reversion to fundamentals. We study real estate markets and find that households' subjective house-price expectations capture momentum but not reversion to fundamentals. Moreover, if current house prices are deviated...

At the zero lower bound (ZLB), expectations about the future path of monetary or fiscal policy are crucial. We model expectations formation under level-k thinking, a form of bounded rationality introduced by García-Schmidt and Woodford (2019) and Farhi and Werning (2017), consistent with...