Abstract

This paper outlines a model where a household forms subjective expectations about his income by 'anchoring' on a professional's forecasts of the aggregate economy. Hence, the household is able to form relative (or real) income expectations. However, he observes the professional's forecasts imperfectly and only adjusts his expectations partially. Using the 'Lucas- Phelps Island' scenario, set in the context of households, we show how persistence of real effects could arise in such a scenario.

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Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 263-268
Launched on MUSE
2006-04-24
Open Access
No
Archive Status
Archived 2007
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