Subjective Models of the Macroeconomy: Evidence from Experts and Representative Samples

133 Pages Posted: 22 Apr 2019 Last revised: 8 Jul 2021

See all articles by Peter Andre

Peter Andre

University of Bonn

Carlo Pizzinelli

University of Oxford

Christopher Roth

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

Johannes Wohlfart

University of Copenhagen

Multiple version iconThere are 3 versions of this paper

Date Written: March 19, 2019

Abstract

We study people's subjective models of the macroeconomy and shed light on their attentional foundations. To do so, we measure beliefs about the effects of macroeconomic shocks on unemployment and inflation, holding constant information about previous realizations of macroeconomic variables. Within samples of both 6,500 US households and 1,500 experts, beliefs are widely dispersed, even about the directional effects of shocks, and there are large differences in average beliefs between households and experts. Part of this disagreement seems to arise from selective retrieval of different propagation channels of macroeconomic shocks. We confirm this mechanism causally by exogenously shifting households' attention to either supply-side or demand-side channels. Moreover, households with different personal experiences recall different propagation channels of the shocks, while experts tend to recall textbook models. Our findings offer a new perspective on the widely documented disagreement in macroeconomic expectations.

Keywords: Expectation Formation, Subjective Models, Associations, Thoughts, Attention, Experiences, Macroeconomic Shocks, Monetary Policy, Fiscal Policy.

JEL Classification: D83, D84, E31, E52, E71

Suggested Citation

Andre, Peter and Pizzinelli, Carlo and Roth, Christopher and Wohlfart, Johannes, Subjective Models of the Macroeconomy: Evidence from Experts and Representative Samples (March 19, 2019). Available at SSRN: https://ssrn.com/abstract=3355356 or http://dx.doi.org/10.2139/ssrn.3355356

Peter Andre

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Carlo Pizzinelli

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

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 )

Ă˜ster Farimagsgade 5
Building 35
Copenhagen, DK-1353
Denmark

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

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