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Expectations as a source of macroeconomic persistence: Evidence from survey expectations in a dynamic macro model

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  • Fuhrer, Jeff

Abstract

Embedding survey expectations in a standard DSGE model helps to identify key slope parameters in standard relationships; dramatically reduces the need for lagged dependent variables, often motivated by price-indexation and habit formation; and obviates the need for autocorrelated structural shocks in the key equations. Formal statistical tests demonstrate that much of the persistence in aggregate data is better accounted for by slow-moving expectations, rather than by habits, indexation and autocorrelated structural shocks.

Suggested Citation

  • Fuhrer, Jeff, 2017. "Expectations as a source of macroeconomic persistence: Evidence from survey expectations in a dynamic macro model," Journal of Monetary Economics, Elsevier, vol. 86(C), pages 22-35.
    • Handle: RePEc:eee:moneco:v:86:y:2017:i:c:p:22-35
    DOI: 10.1016/j.jmoneco.2016.12.003
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