This paper outlines a model where a householder forms subjective expectations about his income by "anchoring" on a professional's forecasts of the aggregate economy. Hence, the householder 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.
|Number of pages||6|
|Journal||Journal of Money, Credit and Banking|
|Publication status||Published - 2006|
- Speculations (D840)
- Information and Knowledge
- Belief (D830)