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

72 Pages Posted: 25 Sep 2018

See all articles by Christopher Roth

Christopher Roth

University of Warwick, Faculty of Social Studies, Department of Economics, Students

Johannes Wohlfart

University of Copenhagen

Multiple version iconThere are 2 versions of this paper

Date Written: July 18, 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 aggregate economic outlook in response to the forecasts, extrapolate to expectations about their personal economic circumstances and adjust their consumption behavior and stock purchases. Extrapolation to expectations about personal unemployment is driven by individuals with higher exposure to macroeconomic risk, consistent with sticky information models in which people are inattentive, but understand how the economy works.

Keywords: expectation formation, information, updating, aggregate uncertainty, macroeconomic conditions

JEL Classification: D120, D140, D830, D840, E320, G110

Suggested Citation

Roth, Christopher and Wohlfart, Johannes, How Do Expectations About the Macroeconomy Affect Personal Expectations and Behavior? (July 18, 2018). CESifo Working Paper Series No. 7154, Available at SSRN: https://ssrn.com/abstract=3250741

Christopher Roth

University of Warwick, Faculty of Social Studies, Department of Economics, Students ( email )

Coventry, CV4 7AL
United Kingdom

Johannes Wohlfart (Contact Author)

University of Copenhagen ( email )

Øster Farimagsgade 5
Building 35
Copenhagen, DK-1353
Denmark

HOME PAGE: http://https://sites.google.com/site/johanneswohlfartecon/home

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