Uncovering Subjective Models from Survey Expectations

Chenyu Hou and Tao Wang

Staff Working Papers from Bank of Canada

Abstract: Households may perceive that macroeconomic variables move together in a different way from that implied by their actual realizations and sophisticated models. We use a structural test derived from a multivariate noisy-information framework and additional evidence from survey data and newspaper narratives to show that information friction alone cannot explain households’ tendency to associate higher future inflation with a worse labor market outlook. We also show that the subjective model empirically uncovered from survey data implies amplified output responses to supply shocks, but dampened output and price responses to demand shocks.

Keywords: Business fluctuations and cycles; Monetary policy; Inflation and prices; Labour markets (search for similar items in EconPapers)
JEL-codes: D84 E21 E30 E32 E71 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2025-11
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:25-31

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