“He argues that biases of market participants reinforce themselves and
turn into self-reinforcing trends until there is a correction.”

This is true, and is definitely accepted in terms of practical modeling by economists. It is surprisingly hard to really figure out how much expectations of inflation are “adaptive” and what part is “forward looking”.

Definitely an interesting and relevant study, I just get sort of excited thinking about “why” economists concern themselves about inflation and “what” it is – hence why I used it to go on a rant 😛

He argues that biases of market participants reinforce themselves and turn into self-reinforcing trends until there is a correction.

Thus higher food price inflation would lead to higher levels of expected food price inflation before reality intervenes.

In terms of financial markets, a positive trend leads to positive expectations, which leads to a self-reinforcing trend until the fake boom is revealed and the reversal of fortune begins.

I’d argue with inflation targeting that households are inadvertently investing in assets that can benefit from inflation – housing as a main example.

People in the street seem to understand that inflation leads to higher house prices, but miss the lower real money balance thing.