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Mandelbrot, B. and Taleb, N.N. (2010) Mild vs. Wild Randomness: Focusing on Those Risks That Matter. In: Diebold, F.X., Doherty, N.A. and Herring, R.J., Eds., The Known, the Unknown and the Unknowable in Financial Institutions: Measurement and Theory Advancing Practice, Princeton University Press, Princeton, 47-58.

has been cited by the following article:

  • TITLE: Anchoring Heuristic Messes with Inflation Targeting

    AUTHORS: Evelin Da Silva, Sergio Da Silva

    KEYWORDS: Anchoring Heuristic, Inflation Targeting, Adaptive Learning

    JOURNAL NAME: Open Access Library Journal, Vol.2 No.4, April 14, 2015

    ABSTRACT: We evaluate recent inflation-targeting using Brazilian data and also consider the framework of the macroeconomic model of adaptive learning blended with a cognitive psychology approach. We suggest that forecasters interpret the inflation target as an anchor, and adjust to it accordingly. As current inflation increases above the target level, a central bank loses credibility, and forecasters start the adjustment from the top because they expect an even higher future inflation. Then, they move back to the core target within a range of uncertainty, but the adjustment is likely to end before the core is reached, as predicted by the psychological theory of anchors. After calibrating the model, we find an asymptotic equilibrium of a 6.1 percent inflation rate, which overshoots the announced target inflation core of 4.5 percent. This example casts doubt on the very justification for inflation targeting, which is unlikely to succeed when private forecasters rely on anchoring heuristics.