Financial Crisis and Sticky Expectations

Saten Kumar and Barrett Owen
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Saten Kumar: Department of Economics, Faculty of Business and Law, Auckland University of Technology

No 2013-05, Working Papers from Auckland University of Technology, Department of Economics

Abstract: We utilize the Kalman filter and instrumental variable methods to estimate consumption growth persistence for the U.S. Results show that prior to the financial crisis, the stickiness parameter beta was around 0.7. However, when the sample is extended until 2009.Q1, the estimates of beta declined to around 0.5. Extending the sample beyond 2009.Q1 show mild increase in beta. Our findings imply that during the crisis consumers' attentiveness to aggregate information has slightly increased, thereby reducing the persistence of aggregate consumption growth.

Keywords: financial crisis; Kalman filter; sticky expectations (search for similar items in EconPapers)
JEL-codes: C5 E2 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2013-05
New Economics Papers: this item is included in nep-cba
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