It is theoretically possible that non-fundamental idiosyncratic shocks to agents’ rational expectations are a source of economic fluctuations. Studies using data on consumer and investor sentiment suggest that this is indeed an important source of fluctuations. We present the results of a study that uses forecasts from professional forecasters to extract non-fundamental shocks to expectations. In contrast to previous studies, we show that non-fundamental expectations are not a significant source of output fluctuations, although such shocks contributed to inflation.
Non-fundamental expectations, Sunspots, Economic fluctuations, Survey of professional forecasters, Vector autoregressions
Econometrics | Macroeconomics
Journal of Macroeconomics
Choy, Keen Meng; Leong, Kenneth; and Tay, Anthony S..
Non-fundamental expectations and economic fluctuations: Evidence from professional forecasts. (2006). Journal of Macroeconomics. 28, (2), 446-460. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/163
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