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Macroeconomic vulnerability and disagreement in expectations

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  • Badarinza, Cristian
  • Gross, Marco

Abstract

In this paper we discuss the role of the cross-sectional heterogeneity of beliefs in the context of understanding and assessing macroeconomic vulnerability. Emphasis lies on the potential of changing levels of disagreement in expectations to influence the propensity of the economy to switch between different regimes, a hypothesis that finds robust empirical support from a regime-switching model with endogenous transition probabilities for output growth and realized stock market volatility in the US. JEL Classification: C53, D8, E32

Suggested Citation

  • Badarinza, Cristian & Gross, Marco, 2011. "Macroeconomic vulnerability and disagreement in expectations," Working Paper Series 1407, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20111407
    Note: 3098116
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1407.pdf
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    Cited by:

    1. Theresa Kuchler & Basit Zafar, 2019. "Personal Experiences and Expectations about Aggregate Outcomes," Journal of Finance, American Finance Association, vol. 74(5), pages 2491-2542, October.
    2. Young Se Kim & Byeongdeuk Jang, 2015. "Dispersion of Inflation Expectations: Stylized Facts, Puzzles, and Macroeconomic Implications," Korean Economic Review, Korean Economic Association, vol. 31, pages 89-119.
    3. Basit Zafar & Theresa Kuchler, 2015. "Expectation Formation," 2015 Meeting Papers 678, Society for Economic Dynamics.
    4. Gross, Marco & Binder, Michael, 2013. "Regime-switching global vector autoregressive models," Working Paper Series 1569, European Central Bank.

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    More about this item

    Keywords

    business cycles; endogenous transition probabilities; forecasting; Heterogeneous beliefs; regime-switching;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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