Template-Type: ReDIF-Paper 1.0

Author-Name: Sergey Ivashchenko
Author-Email: IvashchenkoSM@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Author-Name: Andrey Sinyakov
Author-Email: SinyakovAA@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Title: Heterogeneous Inflation Expectations Across Economic Agents: Implications for Monetary Policy

Abstract: It is well-documented in economic literature that inflation expectations
exhibit significant heterogeneity across various economic agents, notably
households, firms, and financial institutions. This paper investigates the
relative importance of these agents' expectations in shaping inflation
dynamics within a general equilibrium framework.
We introduce non-rational, non-systematic expectation shocks into an
otherwise standard small open economy New-Keynesian model, calibrated
and estimated using Russian data. This novel approach allows us to isolate
exogenous variations in inflation expectations specific to each agent type
and assess their distinct impacts on realized inflation.
Our results demonstrate that central banks must respond explicitly to
non-rational, non-systematic expectation shocks originating from private
agents. Importantly, we find that expectation shocks from financial
institutions (banks) exert a larger influence on realized inflation than shocks
originating from households or firms. This outcome remains robust across
multiple variations in model structure and parameterization. In contrast, the
inflationary effects of households’ and firms’ expectation shocks manifest in
ways unpredictable to these agents themselves, highlighting an
expectations-feedback gap.
The findings have important implications for monetary policy,
particularly regarding communication strategies.

Length: 85 pages
Creation-Date: 2025-07
Revision-Date:
Publication-Status:
File-URL: https://www.cbr.ru/StaticHtml/File/178680/wp_152.pdf
File-Format: Application/pdf
File-Function:
Number: wps152
Classification-JEL: E31, E37, E52, D84
Keywords: inflation expectations, heterogeneous agents, expectation
shocks, monetary policy, financial institutions, New-Keynesian model,
general equilibrium, diversity in inflation expectations
Handle:RePEc:bkr:wpaper:wps152