Predicting the macroeconomic effects of abstract and concrete events
This paper presents experimental evidence that non-experts do not distinguish between macroeconomically relevant and irrelevant events in the way economic theory would suggest. Students were asked to predict the likely consequences of several events in fictitious newspaper reports on GDP, inflation, unemployment, and aggregate sales. They overestimate the effects of irrelevant events, especially if those events are easy to imagine. The magnitudes of the predicted effects are clearly related to the concreteness of the events. The results are compatible with the use of the availability heuristic in the process of forming economic expectations.
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- Jonas Dovern & Joerg Doepke & Ulrich Fritsche & Jirka Slacalek, 2006.
"Sticky Information Phillips Curves: European Evidence,"
Macroeconomics and Finance Series
200604, Hamburg University, Department Wirtschaft und Politik.
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- Slacalek, Jirka & Fritsche, Ulrich & Dovern, Jonas & Döpke, Jörg, 2005. "European inflation expectations dynamics," Discussion Paper Series 1: Economic Studies 2005,37, Deutsche Bundesbank, Research Centre.
- Michael W. M. Roos, 2005. "TV Weather Forecast or Look through the Window? Expert and Consumer Expectations about Macroeconomic Conditions," Kyklos, Wiley Blackwell, vol. 58(3), pages 415-437, 07.
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