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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. Fabio Milani, 2011. "Expectation Shocks and Learning as Drivers of the Business Cycle," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(552), pages 379-401, 05.
  2. Witte, Björn-Christopher, 2009. "Temporal information gaps and market efficiency: A dynamic behavioral analysis," BERG Working Paper Series, Bamberg University, Bamberg Economic Research Group 64, Bamberg University, Bamberg Economic Research Group.
  3. Bernd Hayo & Matthias Wrede, 2002. "Fiscal Equalisation: Principles and an Application to the European Union," Public Economics, EconWPA 0201001, EconWPA.
  4. Lines Marji & Westerhoff Frank, 2012. "Effects of Inflation Expectations on Macroeconomic Dynamics: Extrapolative Versus Regressive Expectations," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 16(4), pages 1-30, October.
  5. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2004. "Disagreement about Inflation Expectations," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 2003, Volume 18, pages 209-270 National Bureau of Economic Research, Inc.
  6. M. Hashem Pesaran & Martin Weale, 2005. "Survey Expectations," IEPR Working Papers, Institute of Economic Policy Research (IEPR) 05.30, Institute of Economic Policy Research (IEPR).
  7. Malaj, Arben & Mema, Fatmir, 2003. "Strategic privatisation: Its achievements and challenges," BERG Working Paper Series, Bamberg University, Bamberg Economic Research Group 41, Bamberg University, Bamberg Economic Research Group.
  8. Kurt A. Hafner, 2006. "Agglomeration, Migration and Tax Competition," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c011_027, DEGIT, Dynamics, Economic Growth, and International Trade.
  9. Wrede, Matthias, 1999. "A note on reliefs for traveling expenses to work," BERG Working Paper Series, Bamberg University, Bamberg Economic Research Group 30, Bamberg University, Bamberg Economic Research Group.
  10. Carsten Eckel, 2009. "International Trade and Retailing," CESifo Working Paper Series, CESifo Group Munich 2597, CESifo Group Munich.
  11. Kächelein, Holger, 2004. "Capital Tax Competition and Partial Cooperation : Welfare Enhancing or not?," BERG Working Paper Series, Bamberg University, Bamberg Economic Research Group 51, Bamberg University, Bamberg Economic Research Group.
  12. Westerhoff, Frank, 2009. "A simple agent-based financial market model: Direct interactions and comparisons of trading profits," BERG Working Paper Series, Bamberg University, Bamberg Economic Research Group 61, Bamberg University, Bamberg Economic Research Group.
  13. Jenei, György, 2009. "A post-accession crisis? Political developments and public sector modernization in Hungary," BERG Working Paper Series, Bamberg University, Bamberg Economic Research Group 67, Bamberg University, Bamberg Economic Research Group.
  14. Roberto Dieci & Frank Westerhoff, 2012. "A simple model of a speculative housing market," Journal of Evolutionary Economics, Springer, Springer, vol. 22(2), pages 303-329, April.
  15. Gaber, Stevan, 2010. "Economic implications from deficit finance," BERG Working Paper Series, Bamberg University, Bamberg Economic Research Group 69, 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, Bamberg University, Bamberg Economic Research Group 58, 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, Bamberg University, Bamberg Economic Research Group 83, Bamberg University, Bamberg Economic Research Group.
  2. Franke, Reiner & Westerhoff, Frank, 2012. "Structural stochastic volatility in asset pricing dynamics: Estimation and model contest," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(8), pages 1193-1211.
  3. Imami, Drini & Lami, Endrit & Kächelein, Holger, 2011. "Political cycles in income from privatization: The case of Albania," BERG Working Paper Series, Bamberg University, Bamberg Economic Research Group 77, Bamberg University, Bamberg Economic Research Group.
  4. 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, Bamberg University, Bamberg Economic Research Group 87, Bamberg University, Bamberg Economic Research Group.

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