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Food Prices, Expectations, and Inflation

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  • Carl Van Duyne

Abstract

This paper explores a hypothesis about the formation of inflation expectations, popular among policy makers, which states that economic agents place a greater weight on the recent behavior of food prices when forming expectations than expenditure shares would indicate. This hypothesis is termed the biased expectations hypothesis (BEH). Using a stochastic fixprice-flexprice model of the U.S. economy, I derive the implications of the BEH for the overall rate of inflation and demonstrate that a bias in the formation of expectations may be Muth-rational. The empirical results suggest that there is no bias in the formation of expectations of any consequence for policy.

Suggested Citation

  • Carl Van Duyne, 1982. "Food Prices, Expectations, and Inflation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(3), pages 419-430.
    • Handle: RePEc:oup:ajagec:v:64:y:1982:i:3:p:419-430.
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    File URL: http://hdl.handle.net/10.2307/1240634
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    Cited by:

    1. Just, Richard E., 1989. "Modelling the Interactive Effect of Alternative Sets of Policies on Agricultural Prices," Working Papers 197611, University of Maryland, Department of Agricultural and Resource Economics.
    2. Robert G Murphy & Adam Rohde, 2018. "Rational Bias in Inflation Expectations," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 44(1), pages 153-171, January.
    3. Stamoulis, Kostas G. & Chalfant, James A. & Rausser, Gordon C., 1985. "Monetary policies and the overshooting of flexible price: implications for agricultural policy," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0cd3n682, Department of Agricultural & Resource Economics, UC Berkeley.
    4. Huang, Chung-Huang, 1989. "Rational Expectations without Equilibrium: the Case of Rice Production in Taiwan," WAEA/ WFEA Conference Archive (1929-1995) 244975, Western Agricultural Economics Association.
    5. Lars Jonung & Eskil Wadensjö, 1987. "Rational, adaptive and learning behavior of voters: Evidence from disaggregated popularity functions for Sweden," Public Choice, Springer, vol. 54(3), pages 197-210, August.

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