The Residents Inflation Expectations Heterogeneity Based On Genetic Algorithm

Inflation expectation has always been the focus of attention of the political and academic circles from its birth. Over a long period, rational expectations have been regarded as a "natural" hypothesis by scholars, and many theories have been developed on the basis of this assumption. However, the scholars’ deep research revealed that inflation expectation not rational or homogeneous, but heterogeneous, because information, initial cognition and learning factors would affect the expectation formation process of economic entities. The central bank should pay more attention to the disagreement of economic individual expectations for the heterogeneity will impact the monetary policy’s effect. This paper is based on the assumption that the inflation expectation is heterogeneous.In this paper, the innovation of genetic algorithm is introduced into the study of the heterogeneity of the residents’ inflation expectations, and a generation overlapping generation model is established. Under the condition of fixed money supply and actual money supply, we carry on the genetic algorithm simulation experiments. Using genetic algorithm, we can simulate the heterogeneity of residents’ inflation expectations, and describe the dynamic evolution process of the heterogeneity of the residents’ inflation expectations accurately.According to the experimental result, we draw some useful conclusions:(1) the inflation expectation is not maintained, residents will keep imitating, communicating, learning more accurate rules of expectations and updating it.(2) whatever monetary policy is, residents’ expectations won’t all maintain under a certain level, but have a tendency to go homogenized.(3) Chinese residents’ inflation expectations show obvious heterogeneity, so the central bank should pay more attention to people’s inflation expectations and guide them, strengthen communication with public, improve monetary policy’s transparency and credibility, and try to manage inflation expectations with inflation targeting.