Expectation-driven cycles: time-varying effects

Antonello D'Agostino and Caterina Mendicino

No 1776, Working Paper Series from European Central Bank

Abstract: This paper provides new insights into expectation-driven cycles by estimating a structural VAR with time-varying coefficients and stochastic volatility, as in Cogley and Sargent (2005) and Primiceri (2005). We use survey-based expectations of the unemployment rate to measure expectations of future developments in economic activity. We find that the effect of expectation shocks on the realized unemployment rate have been particularly large during the most recent recession. Unanticipated changes in expectations contributed to the gradual increase in the persistence of the unemployment rate and to the decline in the correlation between the inflation and the unemployment rate over time. Our results are robust to the introduction of financial variables in the model. JEL Classification: C32, E24, E32

Keywords: economic fluctuations; stochastic volatility; survey expectations; time varying vector autoregression (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-ets
Note: 1774743
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Related works:
Working Paper: Expectation-driven cycles: Time-Varying Effects (2016)
Working Paper: Expectation-Driven Cycles: Time-varying Effects (2015)
Working Paper: Expectation-Driven Cycles: Time-varying Effects (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20151776

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