Unemployment Expectations and the Business Cycle
I compare unemployment expectations from the Michigan Survey of Consumers to VAR forecastable movements in unemployment. I document three key facts. First, one-half to one-third of the population expects unemployment to rise when it is falling at the end of a recession even though the VAR predicts the fall in unemployment. Second, more people expect unemployment to rise when it is falling at the end of a recession than expect it to rise when it is rising at the beginning of a recession even though the VAR predicts these changes. Finally, the lag change in unemployment is almost as important as the VAR forecast in predicting the fraction of the population that expects unemployment to rise. Professional forecasters do not make these mistakes. Least squares learning or real time expectations do little to help explain these facts. However, delayed updating of expectations can explain some of these facts and extrapolative expectations explains these facts best. Individuals with higher income or education are only slightly less likely to make these expectational errors and those who makes these errors are 8-10 percent less likely to believe it is a good time to make a major purchase.
|Date of creation:||Apr 2010|
|Date of revision:||Mar 2011|
|Contact details of provider:|| Postal: |
Web page: http://www.brandeis.edu/departments/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xavier Gabaix & David Laibson, 2002.
"The 6D Bias and the Equity-Premium Puzzle,"
in: NBER Macroeconomics Annual 2001, Volume 16, pages 257-330
National Bureau of Economic Research, Inc.
- Xavier Gabaix & David Laibson, 2002. "The 6D Bias and the Equity Premium Puzzle," Harvard Institute of Economic Research Working Papers 1947, Harvard - Institute of Economic Research.
- Athanasios Orphanides & Simon van Norden, 2001.
"The Unreliability of Output Gap Estimates in Real Time,"
CIRANO Working Papers
- Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
- Athanasios Orphanides & Simon Van_Norden, 2000. "The Reliability of Output Gap Estimates in Real Time," Econometric Society World Congress 2000 Contributed Papers 0768, Econometric Society.
- Athanasios Orphanides & Simon van Norden, 1999. "The Reliability of Output Gap Estimates in Real Time," Macroeconomics 9907006, EconWPA.
- Athanasios Orphanides & Simon van Norden, 1999. "The reliability of output gap estimates in real time," Finance and Economics Discussion Series 1999-38, Board of Governors of the Federal Reserve System (U.S.).
- Croushore, Dean & Stark, Tom, 2001.
"A real-time data set for macroeconomists,"
Journal of Econometrics,
Elsevier, vol. 105(1), pages 111-130, November.
- Olivier Coibion & Yuriy Gorodnichenko, 2012.
"What Can Survey Forecasts Tell Us about Information Rigidities?,"
Journal of Political Economy,
University of Chicago Press, vol. 120(1), pages 116 - 159.
- Olivier Coibion & Yuriy Gorodnichenko, 2008. "What Can Survey Forecasts Tell Us About Informational Rigidities?," NBER Working Papers 14586, National Bureau of Economic Research, Inc.
- Yuriy Gorodnichenko & Olivier Coibion, 2010. "What can survey forecasts tell us about informational rigidities?," 2010 Meeting Papers 277, Society for Economic Dynamics.
When requesting a correction, please mention this item's handle: RePEc:brd:wpaper:05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Leslie Yancich)
If references are entirely missing, you can add them using this form.