Friday, July 19, 2013

Expectations and learning

Learning from Inflation Experiences assess the way that expectations are formed and finds that personal experience has an impact.

: "How do individuals form expectations about future inflation? We propose that personal experiences play an important role. Individuals adapt their forecasts to new data but overweight inflation realized during their lifetimes."

There is scope here to use some of these ideas in understanding how expectations about the probability of success with the carry trade can affect the trade itself. What is the recent experience?  How have traders experienced the carry?

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