Imperfect Macroeconomic Expectations: Evidence and Theory / George-Marios Angeletos, Zhen Huo, Karthik A. Sastry.

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Angeletos, George-Marios

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w27308.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We document a new fact about expectations: in response to the main shocks driving the business cycle, expectations underreact initially but overshoot later on. We show how previous, seemingly conflicting, evidence can be understood as different facets of this fact. We finally explain what the cumulated evidence means for macroeconomic theory. There is little support for theories emphasizing underextrapolation or two close cousins of it, cognitive discounting and level-K thinking. Instead, the evidence favors the combination of dispersed, noisy information and over-extrapolation.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w27308 (Browse shelf(Opens below))	Not For Loan

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June 2020.

We document a new fact about expectations: in response to the main shocks driving the business cycle, expectations underreact initially but overshoot later on. We show how previous, seemingly conflicting, evidence can be understood as different facets of this fact. We finally explain what the cumulated evidence means for macroeconomic theory. There is little support for theories emphasizing underextrapolation or two close cousins of it, cognitive discounting and level-K thinking. Instead, the evidence favors the combination of dispersed, noisy information and over-extrapolation.