Do Expectations Matter? The Great Moderation Revisited
- (pp. 183-205)
Abstract
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. (JEL E23, E24, E31, E32)Citation
Canova, Fabio, and Luca Gambetti. 2010. "Do Expectations Matter? The Great Moderation Revisited." American Economic Journal: Macroeconomics, 2 (3): 183-205. DOI: 10.1257/mac.2.3.183Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
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