______________________________________________________________________________________ 20221108 ICMB Public Lecture Pierre Wunsch – National Bank of Belgium Page 3 of 11  inflation variable, the steady state can be calibrated, or “hard coded” if you will, at 2% for instance. In general equilibrium models, the assumption of rational expectations typically implies stable inflation dynamics.
This assumption postulates that agents form expectations in a forward-looking way, meaning well-anchored inflation expectations are all that is required.3 Broadly speaking, inflation projections invariably show “mean reversion”. This begs the question of how much weight we should give model-based projections, especially in the context of a potential regime shift and rare event.4 Intuitively, more uncertain projections should get less weight.