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Regime-switching in expectations over the business cycle

Author

Listed:
  • Gwen Eudey
  • Roberto Perli

Abstract

In this paper the authors argue that a plausible reason why output and other major U.S. macroeconomic time series seem to follow a Markov switching process might be strictly related to expectations. The authors show that a time series of expectations of future output from the Survey of Professional Forecasters is the only one among the many they analyze that has switching properties compatible with those of output. Starting from this empirical evidence the authors present a business cycle model with shocks to expectations (sunspots) that produces time series with the same properties as the U.S. data.

Suggested Citation

  • Gwen Eudey & Roberto Perli, 1999. "Regime-switching in expectations over the business cycle," Working Papers 99-17, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:99-17
    as

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    References listed on IDEAS

    as
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