Research
Working papers:
Learning in a Complex World: Insights from an OLG Lab Experiment jointly with Cars Hommes, Isabelle Salle and Stefanie Huber (submitted)
This paper investigates equilibria selection and price dynamics in a complex OLG economy with multiple perfect-foresight equilibria using learning-to-forecast and learning-to-optimize experiments. In the theoretical model, these dynamics depend on one utility function parameter. We conduct five treatments to test price convergence and coordination with different values of this parameter corresponding to (i) a stable 2-cycle, (ii) a stable 3-cycle, (iii) a stable 4-cycle, and (iv) chaos. This paper highlights three key findings: First, price converges to the simplest equilibria (steady state and 2-cycle) in all groups of the learning-to-forecast experiment. Second, convergence to the 2-cycle occurs for the intermediate parameter range, while theoretical scenarios of 2-cycle and highly nonlinear dynamics (chaos) lead to coordination on the steady state in the lab.Finally, convergence in the learning-to-optimize experiment is harder to achieve, and the 2-cycle is not observed although it Pareto dominates the steady state in terms of payoff.
The passthrough from Inflation Perceptions to Inflation Expectations jointly with Stefanie Huber and Tobias Schmidt (submitted)
This paper documents a strong relationship between households’ perceptions about inflation over the past 12 months and households’ short- and long-term expectations about future inflation. This relationship is strong during periods of high-inflation but even stronger during low-inflation periods. We establish a causal relationship by implementing a randomized information provision experiment in a large and representative survey to generate an exogenous variation in inflation perceptions. Our results show that household perceptions about past inflation drive their expectations about future inflation rates. The strength of the pass-through from perceptions to expectations varies across socioeconomic groups. We identify two critical moderating factors for this heterogeneity; differences in individual uncertainty about future inflation and information acquisition. Further, we show that the large majority of households rely on their shopping experience when forming their perceptions about past inflation and pay particular attention to food and fuel prices. The shopping experience affects inflation expectations indirectly—through perceptions.
Coverage: SUERF Policy Brief
Poster_schematic.pdfWork in progress:
The effect of macro and micro shocks on firms’ price-setting. The expectations channel
I study how firm's price-setting decisions react to macro and micro shocks using a representative survey. I split a shock that economy faces into two orthogonal components, a micro shock that affects only firms' own performance and a macro shock that affects the general economic conditions and other firms. The paper analyzes the effect of both shock components using one adverse event that firms in Germany faced over the period from 2020 until 2023, the war in Ukraine. I identify the firms that suffered only a macro shock after this event. and the enterprises which faced both macro and micro shocks. The paper's first important takeaway is that firms' expectations react differently depending on whether they face a micro or a macro shock. Aggregate expectations change more after a purely macro shock, while individual expectations adjust more after a micro shock. The macro and micro shocks also feed differently into the price-setting decisions. A purely macro war shock is associated with a larger price increase, while the firms that face a combined shock adjust prices less. These findings hint that providing information about current general economic conditions to firms might be beneficial.