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

149 Pages Posted: 22 Apr 2019 Last revised: 27 Oct 2021

See all articles by Peter Andre

Peter Andre

briq Institute on Behavior and Inequality

Carlo Pizzinelli

International Monetary Fund (IMF)

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, providing respondents with identical information about the parameters of the shocks and previous realizations of macroeconomic variables. Within samples of 6,500 U.S. 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 because respondents think of different propagation channels of the shocks, in particular demand- versus supply-side mechanisms. We provide evidence on the role of associative memory in driving heterogeneity in thoughts and forecasts: Contextual cues and prior experiences shape which propagation channels individuals retrieve and thereby which forecasts they make. 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

briq Institute on Behavior and Inequality ( email )

Carlo Pizzinelli

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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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