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Identification of Interaction Effects in Survey Expectations: A Cautionary Note

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  • Alfarano Simone

    ()
    (University of Castellón “Jaume I”)

  • Milakovic Mishael

    ()
    (University of Bamberg, Germany)

Abstract

A growing body of literature reports evidence of social interaction effects in survey expectations. In this note, we argue that evidence in favor of social interaction effects should be treated with caution, or could even be spurious. Utilizing a parsimonious stochastic model of expectation formation and dynamics, we show that the existing sample sizes of survey expectations are about two orders of magnitude too small to reasonably distinguish between noise and interaction effects. Moreover, we argue that the problem is compounded by the fact that highly correlated responses among agents might not be caused by interaction effects at all, but instead by model-consistent beliefs. Ultimately, these results suggest that existing survey data cannot facilitate our understanding of the process of expectations formation.

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Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 16 (2012)
Issue (Month): 4 (October)
Pages: 1-23

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Handle: RePEc:bpj:sndecm:v:16:y:2012:i:4:n:5

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  1. Roberto Dieci & Frank Westerhoff, 2012. "A simple model of a speculative housing market," Journal of Evolutionary Economics, Springer, Springer, vol. 22(2), pages 303-329, April.
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  8. Kurt A. Hafner, 2006. "Agglomeration, Migration and Tax Competition," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c011_027, DEGIT, Dynamics, Economic Growth, and International Trade.
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  10. Szüle, Borbála, 2003. "Inside financial conglomerates: Effects in the Hungarian pension fund markets," BERG Working Paper Series 42, Bamberg University, Bamberg Economic Research Group.
  11. Bernd Hayo & Matthias Wrede, 2003. "Fiscal Equalisation: Principles and an Application to the European Union," CESifo Working Paper Series 845, CESifo Group Munich.
  12. Nusser, Michael, 1999. "The implications of wage structure rigidity on human capital accumulation, economic growth and unemployment: A Schumpeterian approach to endogenous growth theory," BERG Working Paper Series 28, Bamberg University, Bamberg Economic Research Group.
  13. Milani, Fabio, 2010. "Expectation Shocks and Learning as Drivers of the Business Cycle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7743, C.E.P.R. Discussion Papers.
  14. Gaber, Stevan, 2010. "Economic implications from deficit finance," BERG Working Paper Series 69, Bamberg University, Bamberg Economic Research Group.
  15. Malaj, Arben & Mema, Fatmir, 2003. "Strategic privatisation: Its achievements and challenges," BERG Working Paper Series 41, Bamberg University, Bamberg Economic Research Group.
  16. Kächelein, Holger, 2004. "Capital Tax Competition and Partial Cooperation : Welfare Enhancing or not?," BERG Working Paper Series 51, Bamberg University, Bamberg Economic Research Group.
  17. Westerhoff, Frank, 2009. "A simple agent-based financial market model: Direct interactions and comparisons of trading profits," BERG Working Paper Series 61, Bamberg University, Bamberg Economic Research Group.
  18. Kola, Tonin & Liko, Elida, 2008. "An empirical assessment of alternative exchange rate regimes in medium term in Albania," BERG Working Paper Series 58, Bamberg University, Bamberg Economic Research Group.
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Cited by:
  1. Imami, Drini & Lami, Endrit & Kächelein, Holger, 2011. "Political cycles in income from privatization: The case of Albania," BERG Working Paper Series 77, Bamberg University, Bamberg Economic Research Group.
  2. Seregi, János & Lelovics, Zsuzsanna & Balogh, László, 2012. "The social welfare function of forests in the light of the theory of public goods," BERG Working Paper Series 87, Bamberg University, Bamberg Economic Research Group.
  3. Franke, Reiner & Westerhoff, Frank, 2012. "Structural stochastic volatility in asset pricing dynamics: Estimation and model contest," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(8), pages 1193-1211.
  4. Franke, Reiner & Westerhoff, Frank, 2011. "Why a simple herding model may generate the stylized facts of daily returns: Explanation and estimation," BERG Working Paper Series 83, Bamberg University, Bamberg Economic Research Group.

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