@article{Herzog2015, author = {Herzog, Bodo}, title = {Anchoring of expectations : the role of credible targets in a game experiment}, journal = {Journal of economic \& financial studies}, volume = {3}, number = {6}, issn = {2379-9463}, doi = {10.18533/jefs.v3i6.169}, institution = {ESB Business School}, pages = {1 -- 15}, year = {2015}, abstract = {This paper provides new evidence on the formation and anchoring of inflation expectations. I conduct a game experiment and analyze the adjustment as well as the impact of credible targets on expectations. In addition, I evaluate the idiosyncratic determinants on the formation of expectations. The analysis reveals six results: First, I find evidence that long-term inflation expectations are firmly anchored to a credible target. Second, a temporary deviation due to unexpected monetary policy might trigger a decline in credibility, and third a de-anchoring of expectations due to uncertainty. Fourth, I find that people change their expectations little if a credible target exists. Fifth, expectations exhibit a large degree of time-variance only in environments without a target. Sixth, the dynamic adjustment to an 'incomplete' equilibrium, which is theoretically unstable, is nevertheless rapid and persistent in case of credible targets. All in all, I demonstrate a unique game setup with contributions to both experimental and monetary economics.}, language = {en} }