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News and households' subjective macroeconomic expectations

  • Easaw, Joshy
  • Ghoshray, Atanu

The purpose of the present paper is to provide microfoundations of how households form subjective expectations of the macroeconomy. We focus on the role of perceived news; distinguishing between good and bad news. The paper introduces a testable model where households give unequal importance (or weights) to 'good' and 'bad' news. The model is empirically verified using household survey data compiled for the US. The results indicate clearly that households give no weight to bad news in the long-run.

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File URL: http://www.sciencedirect.com/science/article/B6X4M-4Y0517B-1/2/74ee08bcdd0473fac67e4c5688d2981d
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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 32 (2010)
Issue (Month): 1 (March)
Pages: 469-475

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Handle: RePEc:eee:jmacro:v:32:y:2010:i:1:p:469-475
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  8. Easaw, Joshy Z. & Heravi, Saeed M., 2004. "Evaluating consumer sentiments as predictors of UK household consumption behavior: Are they accurate and useful?," International Journal of Forecasting, Elsevier, vol. 20(4), pages 671-681.
  9. Eliaz, Kfir & Spiegler, Ran, 2006. "Can anticipatory feelings explain anomalous choices of information sources?," Games and Economic Behavior, Elsevier, vol. 56(1), pages 87-104, July.
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