Do expectations matter? The Great Moderation revisited
Fabio Canova () and
Luca Gambetti ()
No 7597, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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.
Keywords: Expectations; Indeterminacy; Term structure; VARs (search for similar items in EconPapers)
JEL-codes: C11 E12 E32 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cba and nep-mic
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Journal Article: Do Expectations Matter? The Great Moderation Revisited (2010)
Working Paper: Do expectations matter? The Great Moderation revisited (2009)
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