Bounded Rationality in Rules of Price Adjustment and the Phillips Curve

Author(s): Sitong Ding

Type: Research abstract

Department: Department of Economics

Exhibit no: 79

This paper examines an alternative microfoundation for the Phillips Curve by considering a possibility where price setters are constrained by the length of the time horizon over which they can form rational expectations, and they use a combination of the central bank's inflation target and past prices as heuristics.