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Financial Crisis and Sticky Expectations

Author

Listed:
  • Saten Kumar

    (Department of Economics, Faculty of Business and Law, Auckland University of Technology)

  • Barrett Owen

Abstract

We utilize the Kalman filter and instrumental variable methods to estimate consumption growth persistence for the U.S. Results show that prior to the financial crisis, the stickiness parameter beta was around 0.7. However, when the sample is extended until 2009.Q1, the estimates of beta declined to around 0.5. Extending the sample beyond 2009.Q1 show mild increase in beta. Our findings imply that during the crisis consumers' attentiveness to aggregate information has slightly increased, thereby reducing the persistence of aggregate consumption growth.

Suggested Citation

  • Saten Kumar & Barrett Owen, 2013. "Financial Crisis and Sticky Expectations," Working Papers 2013-05, Auckland University of Technology, Department of Economics.
  • Handle: RePEc:aut:wpaper:201305
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    financial crisis; Kalman filter; sticky expectations;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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