The paper studies how a prolonged period of subdued price developments may induce a de-anchoring of inflation expectations from the central bank's objective. This is shown within a framework where agents form expectations using adaptive learning, choosing among a set of alternative forecasting...

Under adaptive learning, recursive algorithms are proposed to represent how agents update their beliefs over time. For applied purposes these algorithms require initial estimates of agents perceived law of motion. Obtaining appropriate initial estimates can become prohibitive within the usual...