Advanced Search
MyIDEAS: Login to save this paper or follow this series

The “Psycho-analysis” of Common People’s Forecast Errors. Evidence from European Consumer Surveys

Contents:

Author Info

  • Maurizio Bovi

    (ISAE - Institute for Studies and Economic Analyses)

Abstract

Persistent and widespread psychological attitudes distort both the subjective probability of future economic events and their retrospective interpretation. It could lead to a systematic gap between (over critic) judgments and (over confident) expectations - the “survey forecast error”. When it goes bad, then, psychology suggests that people could tend to become particularly optimistic towards future evolutions. It could amplify the survey forecast error. These psychological biases are in sharp contrast with the maintained rational expectations hypothesis (REH) of most macro models. Monthly data over twenty-two years reject the REH across ten European countries, supporting the psychological view on non-Muthian expectations.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://lipari.istat.it/digibib/Working_Papers/WP_95_2008_Bovi.pdf
Download Restriction: no

Bibliographic Info

Paper provided by ISTAT - Italian National Institute of Statistics - (Rome, ITALY) in its series ISAE Working Papers with number 95 Classification-JEL C42, C53, C82, D12, D84..

as in new window
Length: 29 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:isa:wpaper:95

Contact details of provider:
Postal: Via Cesare Balbo 16, Roma
Phone: +390646732606
Email:
Web page: http://www.istat.it/en/
More information through EDIRC

Related research

Keywords: Cognitive Psychology; Expectations; Measurement Errors; Survey Data.;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Das, Marcel & van Soest, Arthur, 1997. "Expected and realized income changes: Evidence from the Dutch socio-economic panel," Journal of Economic Behavior & Organization, Elsevier, vol. 32(1), pages 137-154, January.
  2. Ricardo Reis, 2005. "Inattentive Producers," 2005 Meeting Papers 290, Society for Economic Dynamics.
  3. William A. Branch, 2004. "The Theory of Rationally Heterogeneous Expectations: Evidence from Survey Data on Inflation Expectations," Economic Journal, Royal Economic Society, vol. 114(497), pages 592-621, 07.
  4. Jonathan A. Parker & Markus K. Brunnermeier, 2004. "Optimal Expectations," Econometric Society 2004 North American Winter Meetings 426, Econometric Society.
  5. Pesaran, M.H. & Weale, M., 2005. "Survey Expectations," Cambridge Working Papers in Economics 0536, Faculty of Economics, University of Cambridge.
  6. Das, J.W.M. & Soest, A.H.O. van, 1996. "A Panel Data Model for Subjective Information on Household Income Growth," Discussion Paper 1996-75, Tilburg University, Center for Economic Research.
  7. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
  8. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  9. Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring.
  10. Sarah Brown & Karl Taylor, 2006. "Financial expectations, consumption and saving: a microeconomic analysis," Fiscal Studies, Institute for Fiscal Studies, vol. 27(3), pages 313-338, August.
  11. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory And Anticipatory Feelings," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 55-79, February.
  12. Richard T. Curtin, 2003. "Unemployment Expectations: The Impact of Private Information on Income Uncertainty," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(4), pages 539-554, December.
  13. Sendhil Mullainathan & Richard H. Thaler, 2000. "Behavioral Economics," NBER Working Papers 7948, National Bureau of Economic Research, Inc.
  14. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  15. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  16. Jeff Dominitz & Charles F. Manski, 2004. "How Should We Measure Consumer Confidence?," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 51-66, Spring.
  17. Mitchell, James & Weale, Martin R., 2007. "The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey," Discussion Paper Series 1: Economic Studies 2007,19, Deutsche Bundesbank, Research Centre.
  18. Robert J. Shiller, 1980. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," NBER Working Papers 0456, National Bureau of Economic Research, Inc.
  19. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  20. Mark Doms & Norman Morin, 2004. "Consumer sentiment, the economy, and the news media," Finance and Economics Discussion Series 2004-51, Board of Governors of the Federal Reserve System (U.S.).
  21. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126.
  22. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:isa:wpaper:95. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stefania Rossetti).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.