Overreaction in Expectations with Endogenous Feedback (2025) - Job market paper 

Abstract

This paper measures biases in expectations within environments characterized by feedback loops between expectations and outcomes. Through a forecasting experiment, I provide evidence that although individuals systematically overreact to recent information, this overreaction is mitigated by stabilizing general equilibrium feedback. A simple theoretical model incorporating costly information processing shows that such a mitigation is feasible only if agents recognize the existence of feedback and adjust their behavior accordingly, thereby amplifying its stabilizing effects. Within the New Keynesian framework, stronger stabilizing feedback that attenuates the forecasting bias accelerates the convergence of endogenous variables to the rational expectations equilibrium. However, it does not eliminate overreaction, resulting in excess volatility in inflation responses to exogenous shocks. Consequently, monetary policy needs to respond more aggressively to an inflationary shock to achieve the same stabilizing effects as under rational expectations. 

Forward Guidance and Credibility (2024) 

Abstract

This paper measures variation in central bank credibility through the level of agreement in a monetary policy committee and empirically studies its relevance for the effectiveness of forward guidance. Within the European Central Bank’s (ECB) institutional framework, high-frequency identification shows that non-unanimity within the Governing Council leads financial markets to doubt the credibility of their commitment to forward guidance promises. Instead, they respond to policy communication as if expecting a change in policy direction, despite the ECB promising the opposite. The reduced credibility of the commitment then dampens the effect that the easing bias in communication has on expectations, while confirming unanimity does not seem to reinforce it.

Inattention to Financial Information: The Role of Income (Draft available upon request)

(with Manuel Mosquera-Tarrío and Alena Wabitsch), Funded by British Academy/Leverhulme Grant 2023 & Joachim Herz Award 2022 

Abstract

This paper studies how individuals make lifecycle consumption and savings choices when facing stochastic returns on their investments, and how they value information about these returns, conditional on their income. To address this question, we run a large-scale online experiment based on a permanent income model with stochastic interest rates. Two factors are randomized: prior availability of interest-rate information (exposure) and income (stakes). We measure information demand by willingness to pay and find that exposure to information increases demand only among high-income participants; when stakes are low, exposure has little effect. This finding suggests that individuals can learn to value information, but only when the stakes are sufficiently high. Heterogeneity in attention thus reflects not only processing costs but also variation in perceived benefits that scale with economic stakes, underscoring the limitations of central bank communication and financial literacy initiatives.

Expectations, Learning and the Role of Framing in Experimental Environments

Long-term Consequences of Policy Inaction

with Jana Obradović