Concept

Adaptive expectations

Summary
In economics, adaptive expectations is a hypothesized process by which people form their expectations about what will happen in the future based on what has happened in the past. For example, if people want to create an expectation of the inflation rate in the future, they can refer to past inflation rates to infer some consistencies and could derive a more accurate expectation the more years they consider. One simple version of adaptive expectations is stated in the following equation, where p^e is the next year's rate of inflation that is currently expected; p^e_{-1}is this year's rate of inflation that was expected last year; and p is this year's actual rate of inflation: :p^e = p^{e}{-1} + \lambda (p - p^{e}{-1}) where \lambda is between 0 and 1. This says that current expectations of future inflation reflect past expectations and an "error-adjustment" term, in which current expectations are raised (or lowered)
About this result
This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.
Related publications

Loading

Related people

Loading

Related units

Loading

Related concepts

Loading

Related courses

Loading

Related lectures

Loading