On Friday, May 30th, we had the pleasure of welcoming back alumnus Jaroslav Borovička, now a professor at New York University. His talk, titled “Monetary Policy and Inflation Expectations,” focused on how households’ and firms’ expectations influence key macroeconomic outcomes. The event was organized as part of the CERGE-EI #AlumniLive series, which aims to create networking opportunities for CERGE-EI students and alumni while providing insights into successful career paths.
At the beginning, Jaroslav shared a bit about his journey, from studying in Prague to building his academic career in the United States, where he now teaches at NYU. His academic journey from Prague to NYU was particularly interesting and added a personal dimension to the lecture — it was both inspiring and a great way to connect with the audience.
The core of his presentation focused on how households’ and firms’ expectations influence key economic variables such as inflation, consumption, and employment. He presented findings from his recent paper (with Bhandari and Ho, forthcoming in Review of Economic Studies), showing that real-world expectations—measured through surveys—often deviate systematically from rational forecasts.
A significant focus of the talk was the disconnect between rational expectations theory—which assumes people use all available information correctly—and actual survey data, which suggest people often expect the worst. Jaroslav argued that households often make systematic errors, tending toward pessimism, particularly during uncertain times. To account for this, he presented a model in which households are not only uncertain about future outcomes but also about the model they use to form expectations. This uncertainty leads to pessimistic beliefs, where people overestimate adverse outcomes like job loss or price shocks. These beliefs affect real economic behavior, leading to more savings, less spending, and reduced hiring.
This approach to modeling how uncertainty about the economic environment and the expectation-forming process leads to systematic pessimism is particularly compelling. His explanation of how these distorted beliefs drive real behaviors—such as increased saving and reduced hiring—highlighted the practical relevance of his research and its implications for policy design.
He concluded by emphasizing the importance of integrating belief formation into macroeconomic modeling and central bank policymaking. Jaroslav also outlined future research on belief heterogeneity and its implications for optimal policy design.
Jaroslav Borovička is a CERGE-EI MA in Economics alumnus and one of the leading Czech macroeconomists. He holds a Ph.D. from the University of Chicago and is an Associate Professor in the Department of Economics at New York University, USA.
This blog post has been written by a CERGE-EI student, Mari Mtchedlishvili.
