Work

How Do Expectations about the Macroeconomy Affect Personal Expectations and Behavior?

Year: 2019

Type: article

Abstract: Using a representative online panel from the United States, we examine how individuals' macroeconomic expectations causally affect their personal economic prospects and their behavior. To exogenously vary respondents' expectations, we provide them with different professional forecasts about the likelihood of a recession. Respondents update their macroeconomic outlook in response to the forecasts, extrapolate to expectations about their personal economic circumstances, and adjust their consumption plans and stock purchases. Extrapolation to expectations about personal unemployment is driven by individuals with higher exposure to macroeconomic risk, consistent with macroeconomic models of imperfect information in which people are inattentive but understand how the economy works.

Source: The Review of Economics and Statistics

DOI: 10.1162/rest_a_00867

Authors: Christopher Roth, Johannes Wohlfart

Institution: University of Warwick

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: bronze

Funders: University of Oxford, Deutsche Forschungsgemeinschaft