Subjective Models of the Macroeconomy: Evidence from Experts and Representative Samples

We study people’s subjective models of the macroeconomy and shed light on their attentional foundations. To do so, we measure beliefs about the effects of macroeconomic shocks on unemployment and inflation, holding constant information about previous realizations of macroeconomic variables. Within samples of both 6,500 US households and 1,500 experts, beliefs are widely dispersed, even about the directional effects of shocks, and there are large differences in average beliefs between households and experts. Part of this disagreement seems to arise from selective retrieval of different propagation channels of macroeconomic shocks. We confirm this mechanism causally by exogenously shifting households’ attention to either supply-side or demand-side channels. Moreover, households with different personal experiences recall different propagation channels of the shocks, while experts tend to recall textbook models. Our findings offer a new perspective on the widely documented disagreement in macroeconomic expectations.