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The Index of Leading Economic Indicators as a Source of Expectational Shocks

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Author Info

  • Seonghwan Oh

    (Seoul National University)

  • Michael Waldman

    ()
    (Johnson Graduate School of Management, Cornell University)

Abstract

A recurrent theme in the literature on business cycle fluctuations is the importance of expectational shocks that change the beliefs of agents concerning the future level of aggregate activity, but that do not reflect real movements in the fundamentals. This paper employs the ASA-NBER Survey of Forecasts by Economic Statisticians to measure expectations and investigates whether the errors in the initial announcements of the index of leading economic indicators serve as a source of this type of expectational shock. Our analysis strongly supports the idea that these errors are both a statistically significant and economically significant source of such shocks.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume31/V31N1P75_95.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 31 (2005)
Issue (Month): 1 (Winter)
Pages: 75-95

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Handle: RePEc:eej:eeconj:v:31:y:2005:i:1:p:75-95

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Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
Phone: (201) 684-7346
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Web page: http://www.ramapo.edu/eea/journal.html
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Related research

Keywords: Business Cycle; Cycle; Economic Indicator; Fluctuation; Forecast;

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References

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  1. P. Diamond, 1980. "Aggregate Demand Management in Search Equilibrium," Working papers 268, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
  3. Matsusaka, John G & Sbordone, Argia M, 1995. "Consumer Confidence and Economic Fluctuations," Economic Inquiry, Western Economic Association International, vol. 33(2), pages 296-318, April.
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  6. Haltiwanger, John C & Waldman, Michael, 1989. "Limited Rationality and Strategic Complements: The Implications for Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 463-83, August.
  7. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
  8. Oh, S. & Waldman, M., 1990. "The Macroeconomic Effects Of False Announcements," Papers 17, California Los Angeles - Applied Econometrics.
  9. Sethi, Rajiv & Franke, Reiner, 1995. "Behavioural Heterogeneity under Evolutionary Pressure: Macroeconomic Implications of Costly Optimisation," Economic Journal, Royal Economic Society, vol. 105(430), pages 583-600, May.
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  13. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
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Citations

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Cited by:
  1. Zeno Enders & Michael Kleemann & Gernot Müller, 2013. "Growth Expectations, Undue Optimism, and Short-Run Fluctuations," CESifo Working Paper Series 4548, CESifo Group Munich.
  2. Clements, Michael P. & Galvão, Ana Beatriz, 2009. "First Announcements and Real Economic Activity," The Warwick Economics Research Paper Series (TWERPS) 885, University of Warwick, Department of Economics.
  3. Facundo Albornoz & Joan Esteban & Paolo Vanin, 2009. "Government Information Transparency," Discussion Papers 09-03, Department of Economics, University of Birmingham.
  4. Rodriguez Mora, Jose V. & Schulstad, Paul, 2007. "The effect of GNP announcements on fluctuations of GNP growth," European Economic Review, Elsevier, vol. 51(8), pages 1922-1940, November.
  5. Bomfim, Antulio N., 2001. "Measurement error in general equilibrium: the aggregate effects of noisy economic indicators," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 585-603, December.

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