Do Expectations Matter? The Great Moderation Revisited
Copyright policy )Do Expectations Matter? The Great Moderation Revisited
We examine the role of expectations in the Great Moderation episode. We derive theoretical restrictions in a New-Keynesian model and test them using measures of expectations obtained from survey data, the Greenbook and bond markets. Expectations explain the dynamics of inflation and interest rates but their importance is roughly unchanged over time. Systems with and without expectations display similar reduced form characteristics. Results are robust to changes in the structure of the empirical model. (JEL E23, E24, E31, E32)
- Universitat Pompeu Fabra Spain
- University of Turin Italy
- BI Norwegian Business School Norway
- European University Institute Italy
- Autonomous University of Barcelona Spain
Expectations; Indeterminacy; Term structure; VARs, Indeterminacy, Expectations, Term structure, Structural VARs, Sunspot, term structure, indeterminacy, sunspot, Economics, Econometrics and Finance (all)2001 Economics, Econometrics and Finance (miscellaneous), structural vars, E23, Macroeconomics and International Economics, E24, E31, E32, expectations, jel: jel:E62, jel: jel:E32, jel: jel:C11, jel: jel:E31, jel: jel:E12, jel: jel:E23, jel: jel:E24
Expectations; Indeterminacy; Term structure; VARs, Indeterminacy, Expectations, Term structure, Structural VARs, Sunspot, term structure, indeterminacy, sunspot, Economics, Econometrics and Finance (all)2001 Economics, Econometrics and Finance (miscellaneous), structural vars, E23, Macroeconomics and International Economics, E24, E31, E32, expectations, jel: jel:E62, jel: jel:E32, jel: jel:C11, jel: jel:E31, jel: jel:E12, jel: jel:E23, jel: jel:E24
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