Non-fundamental expectations and economic fluctuations: Evidence from professional forecasts

• Main Authors: Choy, Keen Meng, Leong, Kenneth, Tay, Anthony S.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2006
• Subjects: Non-fundamental expectations; Sunspots; Economic fluctuations; Survey of professional forecasters; Vector autoregressions; Econometrics; Macroeconomics
• Online Access: https://ink.library.smu.edu.sg/soe_research/163; https://ink.library.smu.edu.sg/context/soe_research/article/1162/viewcontent/NonFundamentalExpectationsEconFluc_2006_JM_pp.pdf
• Institution: Singapore Management University

It is theoretically possible that non-fundamental idiosyncratic shocks to agents’ rational expectations are a source of economic fluctuations. Studies using data on consumer and investor sentiment suggest that this is indeed an important source of fluctuations. We present the results of a study that uses forecasts from professional forecasters to extract non-fundamental shocks to expectations. In contrast to previous studies, we show that non-fundamental expectations are not a significant source of output fluctuations, although such shocks contributed to inflation.