Handbook of Economic Expectations

1st Edition - November 4, 2022
Editors: Ruediger Bachmann, Giorgio Topa, Wilbert van der Klaauw
Language: English
Paperback ISBN:
9 7 8 - 0 - 1 2 - 8 2 2 9 2 7 - 9
eBook ISBN:
9 7 8 - 0 - 1 2 - 8 2 3 4 7 6 - 1

Handbook of Economic Expectations discusses the state-of-the-art in the collection, study and use of expectations data in economics, including the modelling of expectations format… Read more

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Handbook of Economic Expectations discusses the state-of-the-art in the collection, study and use of expectations data in economics, including the modelling of expectations formation and updating, as well as open questions and directions for future research. The book spans a broad range of fields, approaches and applications using data on subjective expectations that allows us to make progress on fundamental questions around the formation and updating of expectations by economic agents and their information sets. The information included will help us study heterogeneity and potential biases in expectations and analyze impacts on behavior and decision-making under uncertainty.

Cover image
Title page
Table of Contents
Copyright
Contributors
Preface
Part 1: Expectation elicitation
Chapter 1: Household surveys and probabilistic questions
Abstract
1.1. History and motivation for measuring household economic expectations
1.2. Methodological considerations when developing surveys of expectations
1.3. Insights and methodological advances
1.4. Concluding remarks
References
Chapter 2: Firm surveys
Abstract
2.1. Introduction
2.2. Quantification of qualitative survey answers
2.3. Historic business expectation surveys in the U.S.
2.4. Ongoing business expectation surveys in the U.S.
2.5. Firm surveys in Europe
2.6. Firm surveys in Japan: the TANKAN
2.7. International cooperation
2.8. Conclusion
References
Chapter 3: Surveys of professionals
Abstract
3.1. Surveys of professional forecasters
3.2. Point and density forecasts: data features, measures, and properties
3.3. Evaluation of forecaster performance
3.4. Consistency of point and density forecasts
3.5. Conclusion
Appendix 3.A. Appendix table: surveys of professional forecasters
References
Chapter 4: Survey experiments on economic expectations
Abstract
4.1. Introduction
4.2. Why (field) experiments on expectations?
4.3. Information provision experiments
4.4. Methodological issues
4.5. Extensions and alternative approaches
4.6. Directions for future work
References
Part 2: Expectations as data
Chapter 5: What do the data tell us about inflation expectations?
Abstract
5.1. Introduction
5.2. Data sources
5.3. Stylized facts
5.4. Determinants of inflation expectations
5.5. Inflation expectations and economic choices
5.6. Conclusion and outlook
References
Chapter 6: Housing market expectations
Abstract
6.1. Measuring expectations
6.2. Determinants of expectations and expectations heterogeneity
6.3. The effects of expectations on individual housing market behavior
6.4. House price expectations and aggregate economic outcomes
6.5. Conclusion
References
Chapter 7: Expectations in education
Abstract
7.1. Introduction
7.2. Survey expectations about monetary outcomes of schooling
7.3. Survey expectations about nonmonetary outcomes of schooling
7.4. Analysis of schooling decisions with survey expectations
7.5. Analysis of expectation formation and learning
7.6. Conclusion
References
Chapter 8: Mortality and health expectations
Abstract
8.1. Introduction
8.2. Methods
8.3. Survival expectations
8.4. Health expectations
8.5. Conclusion
Appendix 8.A. Estimation of a rounding model of survival expectations
Appendix 8.B. Additional tables
References
Chapter 9: Expectations in development economics
Abstract
9.1. Introduction
9.2. Measuring probabilistic expectations in surveys in developing countries
9.3. Patterns of answers
9.4. Applications
9.5. Datasets
9.6. Conclusions
References
Chapter 10: Retirement expectations
Abstract
10.1. Introduction
10.2. Theoretical framework
10.3. Measuring retirement age expectations
10.4. Eliciting a planned or expected retirement age
10.5. Subjective retirement probability
10.6. Predicting retirement: subjective probability predictions and predictive analytics
10.7. Subjective work probability predictions among non-full-time worker respondents
10.8. Research on the quality of retirement age expectations
10.9. Potential uses of retirement age expectations
10.10. Research with retirement age expectations as the left-hand-side variable
10.11. Research with retirement age expectations as the right-hand-side variable
10.12. Using conditional subjective work probability predictions to estimate effects on retirement
10.13. Conclusions
References
Chapter 11: The macroeconomic expectations of firms
Abstract
11.1. Introduction
11.2. Surveys of firms' macroeconomic expectations
11.3. Properties of firms' macroeconomic expectations
11.4. Do firms' macroeconomic expectations matter?
11.5. Conclusion
References
Chapter 12: Firm expectations about production and prices: facts, determinants, and effects
Abstract
12.1. Introduction
12.2. Surveying firm expectations
12.3. Stylized facts
12.4. Expectation formation
12.5. Firm expectations and firm decisions
12.6. Conclusion
References
Chapter 13: Expectations of financial market participants
Abstract
13.1. Introduction
13.2. Distinctions across surveys
13.3. Examples of surveys of financial market participants
13.4. Some advantages and uses of surveys
13.5. Drawbacks of surveys
13.6. Conclusion
References
Part 3: Expectations and economic theory
Chapter 14: Measuring market expectations
Abstract
14.1. Introduction
14.2. Market expectations and the price of risk
14.3. Extracting measures of market expectations from asset prices
14.4. Existing empirical evidence for selected markets
14.5. Economic applications of market-based expectation measures
14.6. Conclusions
References
Chapter 15: Inference on probabilistic surveys in macroeconomics with an application to the evolution of uncertainty in the survey of professional forecasters during the COVID pandemic
Abstract
15.1. Introduction
15.2. Inference on probabilistic surveys
15.3. Challenges in measuring uncertainty
15.4. Heterogeneity in density forecasts
15.5. Pooling and consensus forecasts
15.6. The evolution of professional forecasters' density forecasts during the COVID pandemic
15.7. Conclusions
References
Chapter 16: Expectations data in asset pricing
Abstract
16.1. Introduction
16.2. A general asset pricing framework
16.3. Empirical dynamics of investor expectations
16.4. Mapping survey expectations into asset pricing models
16.5. Models of expectations formation
16.6. Future research directions
Appendix 16.A. Data sources for investor expectations
References
Chapter 17: The term structure of expectations
Abstract
17.1. Introduction
17.2. Joint behavior of short- and long-term forecasts
17.3. Expectations and the term structure of interest rates
17.4. The term structure of expectations in structural models
17.5. Conclusions and further directions
References
Chapter 18: Expectational data in DSGE models
Abstract
18.1. Introduction
18.2. Expectational data in rational expectations DSGE models
18.3. Expectational data and deviations from rational expectations
18.4. Heterogeneity in survey expectations
18.5. Issues and limitations
18.6. Conclusions and future directions
References
Chapter 19: Expectations and incomplete markets
Abstract
19.1. Introduction
19.2. The general setup
19.3. News shocks
19.4. Channels underlying savings behavior
19.5. Noise shocks
19.6. Sunspots
19.7. Conclusions
Appendix 19.A. Solutions for news shocks
Appendix 19.B. Computing the Jacobians
References
Chapter 20: Dampening general equilibrium: incomplete information and bounded rationality
Abstract
20.1. Introduction
20.2. Framework
20.3. Incomplete information
20.4. Bounded rationality
20.5. Additional variants and dynamic extensions
20.6. Applications
20.7. Discussion: similarities, differences, and empirical backdrop
20.8. Conclusion
References
Chapter 21: Expectations data in structural microeconomic models
Abstract
21.1. Introduction
21.2. A model
21.3. Literature I: expectations over the states of nature
21.4. Literature II: data on choice expectations
21.5. Conclusion
References
Chapter 22: Expectations data, labor market, and job search
Abstract
22.1. Introduction
22.2. Measurement
22.3. Illustrative framework
22.4. Beliefs and behavior
22.5. Beliefs and biases
22.6. Beliefs and heterogeneity
22.7. Conclusion
References
Part 4: Theories of expectations
Chapter 23: Bayesian learning
Abstract
23.1. Introduction
23.2. Mathematical preliminaries
23.3. Using signals to understand economic activity
23.4. Information choice and learning technologies
23.5. Theories of the data economy
23.6. Conclusion
References
Chapter 24: Ambiguity
Abstract
24.1. Introduction
24.2. Static choice under uncertainty
24.3. Dynamic choice and equilibrium
24.4. Quantifying ambiguity using survey data
24.5. Aggregate applications
24.6. Heterogeneity and micro-to-macro applications
24.7. Policy implications
24.8. Concluding remarks
References
Chapter 25: Epidemiological expectations
Abstract
25.1. Introduction
25.2. Background and motivation
25.3. What insights can the epidemiological framework offer?
25.4. Literature
25.5. Conclusion
References
Part 5: Open issues
Chapter 26: Looking ahead to research enhancing measurement of expectations
Abstract
26.1. Introduction
26.2. Rounding reported probabilities
26.3. Imprecise probabilities
26.4. Studying expectations formation
26.5. Confounding beliefs and preferences
26.6. Conclusion
References
Index

Ruediger Bachmann

Rüdiger Bachmann is currently a Stepan Family Associate Professor (with tenure) of economics at the department of economics at the University of Notre Dame. At Notre Dame he is also a fellow of the Nanovic Institute for European Studies. He is a research affiliate with the Centre for Economic Policy Research (CEPR), a CESifo research network fellow and an external research professor at the ifo institute in Munich. Before joining the University of Notre Dame Bachmann was a full professor (W3) of behavioral economics and finance jointly at Goethe University and the Center of Excellence “Sustainable Architecture for Finance in Europe” (SAFE) in Frankfurt; the holder of the chair of economics, especially Macroeconomics (W3), at RWTH Aachen University; an assistant professor of economics at the University of Michigan; and a visiting (assistant) professor at the University of Pennsylvania, the University of Michigan, Harvard University and Boston University. Bachmann received undergraduate degrees in Economics and Philosophy from Mainz University, and a Ph.D. from Yale University in 2007. Bachmann also serves as an associate editor for the "Journal of Economic Dynamics and Control" and is a member of the macroeconomics committee of the German Economic Association.

Affiliations and expertise

University of Notre Dame, Notre Dame, IN, USA

Giorgio Topa

Giorgio Topa is a Vice President in the Microeconomic Studies Function at the Federal Reserve Bank of New York. His primary research interests include applied microeconomics, labor economics and applied econometrics. He has been studying models of networks and social interactions, and associated econometric tools; mismatch in the labor market; job search behavior; consumer expectations and the elicitation of expectations in surveys. Prior to joining the New York Fed, Mr. Topa was an assistant professor at New York University. He holds a B.A. from Universita' di Venezia, Italy and a Ph.D. from the University of Chicago.

Affiliations and expertise

Federal Reserve Bank of New York, New York, NY, USA

Wilbert van der Klaauw

Wilbert Van Der Klaauw is a Senior Vice President in the Microeconomic Studies Function and Director of the Center for Microeconomic Data at the Federal Reserve Bank of New York. He is a labor economist and applied econometrician whose research interests include the study of life cycle labor supply, household financial behavior and expectations, educational investment and productivity, and econometric approaches to program evaluation. He is co-editor of Labour Economics. Prior to joining the New York Fed, Dr. van der Klaauw was a Professor at UNC-Chapel Hill and Assistant Professor at New York University. He holds a Ph.D. from Brown University.

Affiliations and expertise

Federal Reserve Bank of New York, New York, NY, USA

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Handbook of Economic Expectations

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Ruediger Bachmann

Giorgio Topa

Wilbert van der Klaauw