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Do Expectations Matter? The Great Moderation Revisited

Fabio Canova and Luca Gambetti

American Economic Journal: Macroeconomics, 2010, vol. 2, issue 3, 183-205

Abstract: 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)

JEL-codes: E23 E24 E31 E32 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/mac.2.3.183
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Citations: View citations in EconPapers (54)

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