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 actual outcomes. A forecasting experiment provides evidence of individuals overreacting to recent information, which is mitigated by negative feedback that mirrors the nature of the stabilizing force of monetary policy. A model of expectation formation with costly information processing shows that such a mitigation is possible only if agents recognize the existence of feedback and adjust their behavior accordingly, thereby amplifying its effects. When integrated into a New Keynesian framework, stronger negative feedback that attenuates the forecasting bias accelerates convergence of endogenous variables to the rational expectations equilibrium. However, it does not eliminate it, implying higher persistence in the responses of inflation to exogenous shocks and a need for a stronger monetary policy reaction, relative to rational expectations. 

Forward Guidance and Credibility (2024)  pdf

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. In the European Central Bank’s (ECB) institutional framework, high-frequency identification shows that non-unanimity within the Governing Council makes financial markets doubt the credibility of their commitment to forward guidance promises. Instead, they expect a change in policy direction, regardless of the ECB promising the opposite. Reduced credibility of the commitment then dampens the effect 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 means 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. These findings underscore the limits 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