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Do fiscal variables affect fiscal expectations? Experiments with real world and lab data

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  • Oliver Kirchkamp
  • Michele Bernasconi
  • Paolo Paruolo

Abstract

We generate observable expectations about fiscal variables through laboratory experiments using real world data from several European countries as stimuli. We compare a VAR model of expectations for data which is presented in a fiscal frame with one for neutrally presented data. We find that participants understand the meaning of the fiscal variables, but also that their ability to perceive the correct characteristics of fiscal policy is limited. We tie the VAR analysis to specific models of forming expectations. We find that agents’ expectations are neither consistent with rational nor with purely adaptive expectations but, instead, follow an augmented-adaptive scheme

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Bibliographic Info

Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0608.

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Date of creation: Jun 2006
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Handle: RePEc:san:crieff:0608

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Keywords: Experiments; fiscal policy; expectations; causality; cointegration; panel data.;

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Citations

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Cited by:
  1. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Papers, University of Pittsburgh, Department of Economics 334, University of Pittsburgh, Department of Economics, revised Jun 2014.
  2. Bernasconi, Michele & Kirchkamp, Oliver & Paruolo, Paolo, 2009. "Do fiscal variables affect fiscal expectations? Experiments with real world and lab data," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 70(1-2), pages 253-265, May.
  3. Michael W.M. Roos & Wolfgang J. Luhan, 2008. "As if or What? – Expectations and Optimization in a Simple Macroeconomic Environment," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0055, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Michael W.M. Roos & Ulrich Schmidt, 2011. "The importance of time series extrapolation for macroeconomic expectations," Kiel Working Papers 1723, Kiel Institute for the World Economy.
  5. Michael W.M. Roos & Wolfgang J. Luhan, 2008. "Are Expectations Formed by the Anchoring-and-adjustment Heuristic? – An Experimental Investigation," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0054, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  6. Fiore, Annamaria, 2009. "Experimental Economics: Some Methodological Notes," MPRA Paper 12498, University Library of Munich, Germany.

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