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Non-fundamental expectations and economic fluctuations: Evidence from professional forecasts

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  • Choy, Keen Meng
  • Leong, Kenneth
  • Tay, Anthony S.

Abstract

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 a significant 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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 28 (2006)
Issue (Month): 2 (June)
Pages: 446-460

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Handle: RePEc:eee:jmacro:v:28:y:2006:i:2:p:446-460

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Web page: http://www.elsevier.com/locate/inca/622617

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Citations

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Cited by:
  1. Todd E. Clark & Troy Davig, 2008. "An empirical assessment of the relationships among inflation and short- and long-term expectations," Research Working Paper RWP 08-05, Federal Reserve Bank of Kansas City.
  2. Ishak-Kasim, Syurkani & Ahmed, Abdullahi D., 2009. "Inflation expectations formation and financial stability in Indonesia," MPRA Paper 27763, University Library of Munich, Germany.
  3. Clark, Todd E. & Davig, Troy, 2011. "Decomposing the declining volatility of long-term inflation expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 981-999, July.
  4. Verma, Rahul & Verma, Priti, 2008. "Are survey forecasts of individual and institutional investor sentiments rational?," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 1139-1155, December.

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