Growth expectations, undue optimism, and short-run fluctuations

Michael Kleemann, Gernot Mueller and Zeno Enders
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Gernot Mueller: University of Bonn
Authors registered in the RePEc Author Service: Gernot J. Müller

No 406, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We assess the contribution of "undue optimism" (Pigou) to business-cycle fluctuations. In our analysis, optimism (or pessimism) pertains to total factor productivity which determines long-run economic activity. We develop a new strategy to estimate the effects of optimism shocks - autonomous, but fundamentally unwarranted changes in the assessment of productivity. Specifically, we show that by including survey-based nowcast errors regarding current output growth in a VAR model, it is possible to identify optimism shocks. These shocks, in line with theory, generate negative nowcast errors, but raise economic activity in the short run. They account for about 30 percent of short-run fluctuations.

Date: 2015
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Growth Expectations, Undue Optimism, and Short-Run Fluctuations (2021)
Working Paper: Growth expectations, undue optimism, and short-run fluctuations (2017)
Working Paper: Growth expectations, undue optimism, and short-run fluctuations (2016)
Working Paper: Growth Expectations, Undue Optimism, and Short-Run Fluctuations (2013)
Working Paper: Growth expectations, undue optimism, and short-run fluctuations (2013)
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