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Identification of Interaction Effects in Survey Expectations: A Cautionary Note

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  • Alfarano, Simone
  • Milakovic, Mishael

Abstract

A growing body of literature reports evidence of social interaction effects in survey expectations. In this note, we argue that evidence in favor of social interaction effects should be treated with caution, or could even be spurious. Utilizing a parsimonious stochastic model of expectation formation and dynamics, we show that the existing sample sizes of survey expectations are about two orders of magnitude too small to reasonably distinguish between noise and interaction effects. Moreover, we argue that the problem is compounded by the fact that highly correlated responses among agents might not be caused by interaction eects at all, but instead by model-consistent beliefs. Ultimately, these results suggest that existing survey data cannot facilitate our understanding of the process of expectations formation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26002.

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Date of creation: Oct 2010
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Handle: RePEc:pra:mprapa:26002

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Keywords: Survey expectations; model-consistent beliefs; social inter- action; networks.;

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  1. Malaj, Arben & Mema, Fatmir, 2003. "Strategic privatisation: Its achievements and challenges," BERG Working Paper Series 41, Bamberg University, Bamberg Economic Research Group.
  2. Kächelein, Holger, 2004. "Capital Tax Competition and Partial Cooperation : Welfare Enhancing or not?," BERG Working Paper Series 51, Bamberg University, Bamberg Economic Research Group.
  3. Hafner, Kurt A., 2005. "Agglomeration, Migration and Tax Competition," BERG Working Paper Series 52, Bamberg University, Bamberg Economic Research Group.
  4. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2003. "Disagreement about Inflation Expectations," Harvard Institute of Economic Research Working Papers 2011, Harvard - Institute of Economic Research.
  5. Nusser, Michael, 1999. "The implications of wage structure rigidity on human capital accumulation, economic growth and unemployment: A Schumpeterian approach to endogenous growth theory," BERG Working Paper Series 28, Bamberg University, Bamberg Economic Research Group.
  6. Jenei, György, 2009. "A post-accession crisis? Political developments and public sector modernization in Hungary," BERG Working Paper Series 67, Bamberg University, Bamberg Economic Research Group.
  7. Dieci, Roberto & Westerhoff, Frank, 2009. "A simple model of a speculative housing market," BERG Working Paper Series 62, Bamberg University, Bamberg Economic Research Group.
  8. Hayo, Bernd & Wrede, Matthias, 2001. "Fiscal equalisation: Principles and an application to the European Union," BERG Working Paper Series 38, Bamberg University, Bamberg Economic Research Group.
  9. Eckel, Carsten, 2009. "International trade and retailing," BERG Working Paper Series 63, Bamberg University, Bamberg Economic Research Group.
  10. Pesaran, M.H. & Weale, M., 2005. "Survey Expectations," Cambridge Working Papers in Economics 0536, Faculty of Economics, University of Cambridge.
  11. Milani, Fabio, 2010. "Expectation Shocks and Learning as Drivers of the Business Cycle," CEPR Discussion Papers 7743, C.E.P.R. Discussion Papers.
  12. Lines, Marji & Westerhoff, Frank, 2009. "Effects of inflation expectations on macroeconomic dynamics: Extrapolative versus regressive expectations," BERG Working Paper Series 68, Bamberg University, Bamberg Economic Research Group.
  13. Westerhoff, Frank, 2009. "A simple agent-based financial market model: Direct interactions and comparisons of trading profits," BERG Working Paper Series 61, Bamberg University, Bamberg Economic Research Group.
  14. Treier, Volker, 1999. "Unemployment in reforming countries: Causes, fiscal impacts and the success of transformation," BERG Working Paper Series 29, Bamberg University, Bamberg Economic Research Group.
  15. Szüle, Borbála, 2003. "Inside financial conglomerates: Effects in the Hungarian pension fund markets," BERG Working Paper Series 42, Bamberg University, Bamberg Economic Research Group.
  16. Kola, Tonin & Liko, Elida, 2008. "An empirical assessment of alternative exchange rate regimes in medium term in Albania," BERG Working Paper Series 58, Bamberg University, Bamberg Economic Research Group.
  17. Witte, Björn-Christopher, 2009. "Temporal information gaps and market efficiency: A dynamic behavioral analysis," BERG Working Paper Series 64, Bamberg University, Bamberg Economic Research Group.
  18. Wrede, Matthias, 1999. "A note on reliefs for traveling expenses to work," BERG Working Paper Series 30, Bamberg University, Bamberg Economic Research Group.
  19. Gaber, Stevan, 2010. "Economic implications from deficit finance," BERG Working Paper Series 69, Bamberg University, Bamberg Economic Research Group.
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Cited by:
  1. Franke, Reiner & Westerhoff, Frank, 2011. "Why a simple herding model may generate the stylized facts of daily returns: Explanation and estimation," BERG Working Paper Series 83, Bamberg University, Bamberg Economic Research Group.
  2. Imami, Drini & Lami, Endrit & Kächelein, Holger, 2011. "Political cycles in income from privatization: The case of Albania," BERG Working Paper Series 77, Bamberg University, Bamberg Economic Research Group.
  3. Seregi, János & Lelovics, Zsuzsanna & Balogh, László, 2012. "The social welfare function of forests in the light of the theory of public goods," BERG Working Paper Series 87, Bamberg University, Bamberg Economic Research Group.
  4. Franke, Reiner & Westerhoff, Frank, 2012. "Structural stochastic volatility in asset pricing dynamics: Estimation and model contest," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1193-1211.

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