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Expectation-driven boom-bust cycles

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  • Brianti, Marco
  • Cormun, Vito

Abstract

Using data from the Survey of Professional Forecasters, we observe that a large fraction of analysts’ expectations about future economic growth is not due to technology or other shocks to fundamentals measured by the business cycle literature. We find that these unexplained changes in forecast revisions predict significant boom-bust dynamics in the key macroeconomic aggregates. We offer a novel theory where boom-bust dynamics stem from expectation shocks orthogonal to fundamentals.

Suggested Citation

  • Brianti, Marco & Cormun, Vito, 2024. "Expectation-driven boom-bust cycles," Journal of Monetary Economics, Elsevier, vol. 146(C).
    • Handle: RePEc:eee:moneco:v:146:y:2024:i:c:s030439322400028x
    DOI: 10.1016/j.jmoneco.2024.103575
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    More about this item

    Keywords

    Animal spirit; Boom bust; Business cycle; Sunspot;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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