Regime-switching in expectations over the business cycle
AbstractIn this paper the authors argue that a plausible reason why output and other major U.S. macroeconomic time series seem to follow a Markov switching process might be strictly related to expectations. The authors show that a time series of expectations of future output from the Survey of Professional Forecasters is the only one among the many they analyze that has switching properties compatible with those of output. Starting from this empirical evidence the authors present a business cycle model with shocks to expectations (sunspots) that produces time series with the same properties as the U.S. data.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 99-17.
Date of creation: 1999
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-01-31 (All new papers)
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