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The tale of two expectations

Author

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  • Maurizio Bovi

    (“Sapienza” University of Rome
    ISTAT (Italian National Institute of Statistics))

Abstract

This paper aims to shed some light on the way lay consumers forecast by comparing survey expectations on two different—but linked—fundamentals. Specifically, we study the central tendencies and cross-sectional dispersions of predictions on individual-level and aggregate income dynamics. The proposed joint analysis highlights several interesting outcomes. Agents’ predictions on micro and macroeconomic evolutions do not drift apart despite (possibly composite) shocks have permanent effects on expectations. When shocks create a gap between the two expectations, in fact, individuals revise only forecasts about GDP dynamics. Otherwise stated, predictions on personal stances are much stickier. With respect to these latter, then, expectations on aggregate dynamics overreact to shocks and, amazingly from an objective standpoint, they are systematically bleaker. As per second moments evidence shows, in sharp contrast with the typical assumption maintained in the macroeconomic literature, that disagreement among agents is persistently high. Moreover, the comparison makes astonishingly clear that when predicting the same macro fundamental the consensus is even lower. Finally, our setting allows testing whether cross sectional disagreement and time series volatility in expectations are equal.

Suggested Citation

  • Maurizio Bovi, 2016. "The tale of two expectations," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(6), pages 2677-2705, November.
  • Handle: RePEc:spr:qualqt:v:50:y:2016:i:6:d:10.1007_s11135-015-0283-0
    DOI: 10.1007/s11135-015-0283-0
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    Cited by:

    1. Oscar Claveria & Enric Monte & Salvador Torra, 2017. "Let the data do the talking: Empirical modelling of survey-based expectations by means of genetic programming," IREA Working Papers 201711, University of Barcelona, Research Institute of Applied Economics, revised May 2017.
    2. Oscar Claveria & Enric Monte & Salvador Torra, 2019. "Empirical modelling of survey-based expectations for the design of economic indicators in five European regions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(2), pages 205-227, May.

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    More about this item

    Keywords

    Expectations; Heterogeneous information; Aggregate shocks; Survey data;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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