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Expectations and economic fluctuations: an analysis using survey data

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  • Sylvain Leduc
  • Keith Sill

Abstract

Using survey-based measures of future U.S. economic activity from the Livingston Survey and the Survey of Professional Forecasters, we study how changes in expectations, and their interaction with monetary policy, contribute to fluctuations in macroeconomic aggregates. We find that changes in expected future economic activity are a quantitatively important driver of economic fluctuations: a perception that good times are ahead typically leads to a significant rise in current measures of economic activity and inflation. We also find that the short-term interest rate rises in response to expectations of good times as monetary policy tightens. Our results provide quantitative evidence on the importance of expectations-driven business cycles and on the role that monetary policy plays in shaping them.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2010-09.

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Date of creation: 2010
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Handle: RePEc:fip:fedfwp:2010-09

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Keywords: Economic forecasting ; Monetary policy ; Business cycles;

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  1. Expectation-driven business cycles
    by Economic Logician in Economic Logic on 2010-05-03 14:49:00
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Cited by:
  1. Jaqueson K. Galimberti & Marcelo L. Moura, 2011. "Improving the reliability of real-time Hodrick-Prescott filtering using survey forecasts," Centre for Growth and Business Cycle Research Discussion Paper Series 159, Economics, The Univeristy of Manchester.
  2. Beaudry, Paul & Portier, Franck, 2012. "A gains from trade perspective on macroeconomic fluctuations," ZEW Discussion Papers 12-002, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Sylvain Leduc & Zheng Liu, 2012. "Uncertainty shocks are aggregate demand shocks," Working Paper Series 2012-10, Federal Reserve Bank of San Francisco.
  4. Todd E. Clark & Troy Davig, 2009. "Decomposing the declining volatility of long-term inflation expectations," Research Working Paper RWP 09-05, Federal Reserve Bank of Kansas City.
  5. Lambertini, Luisa & Mendicino, Caterina & Punzi, Maria Teresa, 2013. "Expectation-driven cycles in the housing market: Evidence from survey data," Journal of Financial Stability, Elsevier, vol. 9(4), pages 518-529.
  6. D'Agostino, Antonello & Mendicino, Caterina, 2014. "Expectation-Driven Cycles: Time-varying Effects," MPRA Paper 53607, University Library of Munich, Germany.

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  1. Economic Logic blog

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