A Note on Aggregation of Heterogeneous Expectations in a New Keynesian Economy

This paper discusses conditions for aggregation of heterogeneous expectations in a new-keynesian economy. I show that aggregation result depends on the way agents form cross-expectations, i.e. expectations on other agents' decision variables, and I determine a maximal class of cross-expectation...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Author Koloch, Grzegorz
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2010
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Summary:This paper discusses conditions for aggregation of heterogeneous expectations in a new-keynesian economy. I show that aggregation result depends on the way agents form cross-expectations, i.e. expectations on other agents' decision variables, and I determine a maximal class of cross-expectations operatorsthat support aggregation. Interpretation of obtained conditions in terms of equilibrium and coordination is provided. Although they are restrictive form a mathematical viewpoint, a class of operators which support aggregation and have a natural economic interpretation is discussed.