A working paper published by the European Central Bank presents a new model of how firms and households form inflation expectations.

In Monetary policy and anchored expectations: an endogenous gain learning model, Laura Gáti then applies her model to the US and examines its lessons for rate-setters.

In Gáti’s model, “firms and households understand how different changes in the economy affect current inflation, but they are unsure about what inflation is on average”. They “form their long-run