Adaptive Expectations

Adaptive Expectations suggest that people form their expectations based on recently observed inflation.  They in essence take what they know to be true in order to predict future inflation.  If policy makers want to change inflation they are most likely to have the biggest impact on those with adaptive expectations.  This is because these people will form their ideas around past observations without taking into account the current trends while those with rational expectations will adapt to policy changes rather quickly and thus not be as effected.

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