Subjective Models of the Macroeconomy: Evidence from Experts and a Representative Sample

136 Pages Posted: 14 Oct 2019

See all articles by Peter Andre

Peter Andre

Leibniz Institute for Financial Research SAFE; Goethe University Frankfurt

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: 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, macroeconomic shocks, monetary policy, fiscal policy

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

Suggested Citation

Andre, Peter and Pizzinelli, Carlo and Roth, Christopher and Wohlfart, Johannes, Subjective Models of the Macroeconomy: Evidence from Experts and a Representative Sample (2019). CESifo Working Paper No. 7850, Available at SSRN: https://ssrn.com/abstract=3467984 or http://dx.doi.org/10.2139/ssrn.3467984

Peter Andre (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

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