FinanceandEconomicsDiscussionSeriesFederalReserveBoard,Washington,D.C.ISSN1936-2854(Print)ISSN2767-3898(Online)InflationExpectationswithFiniteHorizonPlanningChristopherGust,EdwardHerbst,andDavidLopez-Salido2024-063Pleasecitethispaperas:Gust,Christopher,EdwardHerbst,andDavidLopez-Salido(2024).“InflationEx-pectationswithFiniteHorizonPlanning,”FinanceandEconomicsDiscussionSe-ries2024-063.Washington:BoardofGovernorsoftheFederalReserveSystem,https://doi.org/10.17016/FEDS.2024.063.NOTE:StaffworkingpapersintheFinanceandEconomicsDiscussionSeries(FEDS)arepreliminarymaterialscirculatedtostimulatediscussionandcriticalcomment.TheanalysisandconclusionssetfortharethoseoftheauthorsanddonotindicateconcurrencebyothermembersoftheresearchstaffortheBoardofGovernors.ReferencesinpublicationstotheFinanceandEconomicsDiscussionSeries(otherthanacknowledgement)shouldbeclearedwiththeauthor(s)toprotectthetentativecharacterofthesepapers.InflationExpectationswithFiniteHorizonPlanning∗ChristopherGust†EdwardHerbst‡DavidL´opez-Salido§May2024AbstractUnderfinitehorizonplanning,householdsandfirmsevaluateafullsetofstate-contingentpathsalongwhichtheeconomymightevolveouttoafinitehorizonbuthavelimitedabilitytoprocesseventsbeyondthathorizon.Weshow–analyticallyandempirically–thatsuchamodelaccountsforaninitialunderreactionandsubsequentoverreac...
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