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How Do People Interpret Macroeconomic Shocks? Evidence from U.S. Survey Data

Martin Geiger and Johann Scharler

Journal of Money, Credit and Banking, 2021, vol. 53, issue 4, 813-843

Abstract: We study the revision of survey expectations in response to macroeconomic shocks, which we identify in vector autoregressive models with sign restrictions. We find that survey respondents distinguish between movements along the Phillips curve and shifts of the Phillips curve, depending on the type of shock that hits the economy. In addition, interest rate expectations are revised broadly in line with a Taylor rule. Consistent with models of rational inattention, macroeconomic shocks account for a small share of the forecast error variance of survey measures elicited from consumers, while they are more relevant for the expectations of professional forecasters.

Date: 2021
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Working Paper: How do people interpret macroeconomic shocks? Evidence from U.S. survey data (2018) Downloads
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