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The importance of time series extrapolation for macroeconomic expectations

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  • Michael W.M. Roos
  • Ulrich Schmidt

Abstract

This paper presents a simple experiment on how laypeople form macroeconomic expectations. Subjects have to forecast inflation and GDP growth. By varying the information provided in different treatments, we can assess the importance of historical time-series information versus information acquired outside the experimental setting such as knowledge of expert forecasts. It turns out that the availability of historical data has a dominant impact on expectations and wipes out the influence of outside-lab information completely. Consequently, backward-looking behavior can be identified unambiguously as a decisive factor in expectation formation

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1723.

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Length: 25 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:kie:kieliw:1723

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Keywords: expectations; macroeconomic experiment; use of information; inflation forecasts;

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Cited by:
  1. Jang, Tae-Seok & Sacht, Stephen, 2012. "Identification of animal spirits in a bounded rationality model: An application to the euro area," Economics Working Papers 2012-12, Christian-Albrechts-University of Kiel, Department of Economics.
  2. Isabelle SALLE (GREThA, CNRS, UMR 5113) & Murat YILDIZOGLU (GREThA, CNRS, UMR 5113) & Marc-Alexandre SENEGAS (GREThA, CNRS, UMR 5113), 2012. "Inflation targeting in a learning economy: An ABM perspective," Cahiers du GREThA 2012-15, Groupe de Recherche en Economie Théorique et Appliquée.

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