How Do Expectations about the Macroeconomy Affect Personal Expectations and Behavior?

80 Pages Posted: 10 Aug 2017 Last revised: 14 Feb 2019

See all articles by Christopher Roth

Christopher Roth

briq- Institute on Behavior & Inequality

Johannes Wohlfart

Goethe University Frankfurt - House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 15, 2018

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.

Keywords: Expectation Formation, Information, Updating, Aggregate Uncertainty, Macroeconomic Conditions

JEL Classification: D12, D14, D83, D84, E32, G11

Suggested Citation

Roth, Christopher and Wohlfart, Johannes, How Do Expectations about the Macroeconomy Affect Personal Expectations and Behavior? (June 15, 2018). Available at SSRN: https://ssrn.com/abstract=3016052 or http://dx.doi.org/10.2139/ssrn.3016052

Christopher Roth (Contact Author)

briq- Institute on Behavior & Inequality ( email )

Schaumburg-Lippe-Straße 5-9
Bonn, 53113
Germany

Johannes Wohlfart

Goethe University Frankfurt - House of Finance ( email )

Grüneburgplatz 1
Frankfurt am Main, DE 60323
Germany

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