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How do expectations about the macroeconomy affect personal expectations and behavior?

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Roth, Christopher and Wohlfart , Johannes (2020) How do expectations about the macroeconomy affect personal expectations and behavior? Review of Economics and Statistics, 102 (4). pp. 731-748. doi:10.1162/rest_a_00867

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Official URL: https://doi.org/10.1162/rest_a_00867

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Abstract

Using a representative online panel from the US, we examine how individuals' macroeconomic expectations causally affect their personal economic prospects and their behavior. To exogenously vary respondents' expectations, we provide them with different professional forecasts about the likelihood of a recession. Respondents update their macroeconomic outlook in response to the forecasts, extrapolate to expectations about their personal economic circumstances and adjust their consumption plans and stock purchases. Extrapolation to expectations about personal unemployment is driven by individuals with higher exposure to macroeconomic risk, consistent with macroeconomic models of imperfect information in which people are inattentive, but understand how the economy works.

Item Type: Journal Article
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Q Science > Q Science (General)
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Macroeconomics, Recessions, Risk management -- Econometric models, Uncertainty (Information theory)
Journal or Publication Title: Review of Economics and Statistics
Publisher: MIT Press
ISSN: 0034-6535
Official Date: October 2020
Dates:
DateEvent
October 2020Published
21 August 2019Available
29 April 2019Accepted
Date of first compliant deposit: 5 July 2019
Volume: 102
Number: 4
Page Range: pp. 731-748
DOI: 10.1162/rest_a_00867
Status: Peer Reviewed
Publication Status: Published
Publisher Statement: Author’s final version, accepted for publication in Review of Economics and Statistics
Access rights to Published version: Restricted or Subscription Access
Copyright Holders: © 2019 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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