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Non-fundamental expectations and economic fluctuations: Evidence from professional forecasts

  • Choy, Keen Meng
  • Leong, Kenneth
  • Tay, Anthony S.

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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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 28 (2006)
Issue (Month): 2 (June)
Pages: 446-460

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Handle: RePEc:eee:jmacro:v:28:y:2006:i:2:p:446-460
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