The Causal Effects of Heterogeneous Expectation Formation in General Equilibrium

Alistair Macaulay

No 226, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: This paper studies the causal effect of heterogeneously-formed expectations on aggregate economic outcomes. To do this, I develop a ‘temporary-information equilibrium’ approach that characterizes the causal impact of expectation changes in a broad class of macroeconomic models using simple crosssectional statistics on how agents form expectations. This approach uncovers a novel ‘narrative heterogeneity channel’ through which heterogeneities in expectation formation can affect the transmission of both expectational and fundamental shocks. This channel arises in a wide range of commonly-used models of expectation formation. In two applications to data on firm and household expectations, I find that narrative heterogeneity accounts for a large but time-varying share of the causal effects of expectations on macroeconomic outcomes.

JEL-codes: D83 D84 E31 E71 (search for similar items in EconPapers)
Pages: 110 pages
Date: 2026-02
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.som.surrey.ac.uk/2026/DP03-26.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0326

Access Statistics for this paper

More papers in School of Economics Discussion Papers from School of Economics, University of Surrey Contact information at EDIRC.
Bibliographic data for series maintained by Ioannis Lazopoulos ().