Professor Dr Johannes Wohlfart (Department of Economics) has been awarded a Starting Grant by the European Research Council (ERC) for his project “Modes of Expectation Formation in Macro and Finance” (MODES). Further awards went to physicist Dr Sabina Hillebrandt and plant scientist Dr Isabel Saur of the University of Cologne. The ERC Starting Grant is regarded as one of the most important European fundings for young researchers. It provides up to €1.5 million over a period of five years.
In times of economic uncertainty, expectations play a decisive role. How do people think about inflation, unemployment or stock markets? What do they expect for the future, and on what basis do they form these expectations? Such expectations are central to both macroeconomics and finance and have become the focus of an expanding field of research.
In the MODES project, the researchers systematically study different “modes of expectation formation”, that is, the various ways in which people form economic expectations. To date, little is known about when certain strategies of expectation formation are used, how the resulting expectations influence actual decisions, and what their broader economic consequences are. The project combines AI-supported interactive surveys with modern economic models to capture systematically how people arrive at their expectations. It examines how different groups, such as households, business managers and financial investors, think about inflation, stock returns or unemployment. The survey data will be linked with banking data and administrative register data on financial decisions and respondents’ background characteristics.
“The insights gained will be fed into realistic macroeconomic models in order to better understand the implications of different expectation formation processes for markets, prices and jobs,” Wohlfart explains. “The aim is to develop a unified yet nuanced picture of how expectations are formed and how they affect the macroeconomy.”
Johannes Wohlfart is Professor at the Cluster of Excellence ECONtribute: Markets & Public Policy. ECONtribute is the only economics-focused Cluster of Excellence funded by the German Research Foundation (DFG), jointly run by the Universities of Bonn and Cologne.
The University of Cologne warmly congratulates Professor Wohlfart on this distinction!