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Non-Fundamental Expectations and Economic Fluctuations: Evidence from Professional Forecasts

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  • Keen Meng Choy

    () (National University of Singapore)

  • Kenneth Leong
  • Anthony S. Tay

Abstract

It is theoretically possible that non-fundamental idiosyncratic shocks to agents’ rational expectations are a source of economic fluctuations. Studies using data on consumer and investor sentiment suggest that this is indeed a significant source of fluctuations. We present the results of a study that uses forecasts from professional forecasters to extract non-fundamental shocks to expectations. In contrast to previous studies, we show that non-fundamental expectations are not a significant source of output fluctuations.

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File URL: http://www.fas.nus.edu.sg/ecs/pub/wp/wp0306.pdf
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Bibliographic Info

Paper provided by National University of Singapore, Department of Economics in its series Departmental Working Papers with number wp0306.

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Date of creation: 2003
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Handle: RePEc:nus:nusewp:wp0306

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Keywords: Non-fundamental expectations; Sunspots; Economic fluctuations; Survey of Professional Forecasters; Vector autoregressions;

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Cited by:
  1. Clark, Todd E. & Davig, Troy, 2011. "Decomposing the declining volatility of long-term inflation expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 981-999, July.
  2. Todd E. Clark & Troy Davig, 2008. "An empirical assessment of the relationships among inflation and short- and long-term expectations," Research Working Paper RWP 08-05, Federal Reserve Bank of Kansas City.
  3. Verma, Rahul & Verma, Priti, 2008. "Are survey forecasts of individual and institutional investor sentiments rational?," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 1139-1155, December.
  4. Ishak-Kasim, Syurkani & Ahmed, Abdullahi D., 2009. "Inflation expectations formation and financial stability in Indonesia," MPRA Paper 27763, University Library of Munich, Germany.

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