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Heterogeneity, Inattention and Bayesian Updates

Giacomini, R; Skreta, V; Turen, J; (2020) Heterogeneity, Inattention and Bayesian Updates. American Economic Journal: Macroeconomics (In press). Green open access

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Abstract

We formulate a theory of expectations updating that fits the dynamics of accuracy and disagreement in a new survey of professional forecasters. We document new stylized facts, including the puzzling persistence of disagreement as uncertainty resolves. Our theory explains these facts by allowing for different channels of heterogeneity. Agents produce an initial forecast based on heterogeneous priors and are heterogeneously “inattentive.” Updaters use Bayes’ rule and interpret public information using possibly heterogeneous models. Structural estimation of our theory supports the conclusion that in normal times heterogeneous priors and inattention are enough to generate persistent disagreement, but not during the crisis.

Type: Article
Title: Heterogeneity, Inattention and Bayesian Updates
Open access status: An open access version is available from UCL Discovery
Publisher version: https://www.aeaweb.org/articles?id=10.1257/mac.201...
Language: English
Keywords: Bayesian updating, Information rigidities, Heterogeneous agents, Expectation formation, Disagreement, Forecast accuracy, Herding. JEL Classification: E27, E37, D80, D83.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10066259
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