Kiel Working Papers, Kiel Institute for World Economics
No 1723:
The importance of time series extrapolation for macroeconomic expectations
Michael W.M. Roos and Ulrich Schmidt
Abstract: This paper presents a simple experiment on how laypeople
form macroeconomic expectations. Subjects have to forecast inflation and
GDP growth. By varying the information provided in different treatments, we
can assess the importance of historical time-series information versus
information acquired outside the experimental setting such as knowledge of
expert forecasts. It turns out that the availability of historical data has
a dominant impact on expectations and wipes out the influence of
outside-lab information completely. Consequently, backward-looking behavior
can be identified unambiguously as a decisive factor in expectation
formation
Keywords: expectations, macroeconomic experiment, use of information, inflation forecasts; (follow links to similar papers)
JEL-Codes: D83,; D84,; E37; (follow links to similar papers)
25 pages, August 2011
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