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The Importance of Time-Series Extrapolation for Macroeconomic Expectations

Author

Listed:
  • Roos Michael W. M.

    (Ruhr-Universität Bochum, Universitätsstraße 150,Bochum, Germany)

  • Schmidt Ulrich

    (Christian-Albrechts-Universität zu Kiel,Kiel, Germany)

Abstract

This article presents a simple experiment on how laypeople form macroeconomic expectations. Subjects have to forecast inflation and gross domestic product growth. By varying the information provided in different treatments, we can assess the importance of historical time-series information vs. information acquired outside the experimental setting such as knowledge of expert forecasts. It turns out that the availability of historical data has a dominant impact on expectations and wipes out the influence of outside-lab information completely. Consequently, backward-looking behavior can be identified unambiguously as a decisive factor in expectation formation.

Suggested Citation

  • Roos Michael W. M. & Schmidt Ulrich, 2012. "The Importance of Time-Series Extrapolation for Macroeconomic Expectations," German Economic Review, De Gruyter, vol. 13(2), pages 196-210, May.
    • Handle: RePEc:bpj:germec:v:13:y:2012:i:2:p:196-210
    DOI: 10.1111/j.1468-0475.2011.00551.x
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