Do expectations matter? The great moderation revisited

Fabio Canova; Luca Gambetti

doi:10.1257/mac.2.3.183

Do expectations matter? The great moderation revisited

Fabio Canova, Luca Gambetti

Department of Economics and Economic History

Research output: Contribution to journal › Article › Research › peer-review

25 Citations (Scopus)

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 isroughly 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, 32).

Original language	English
Pages (from-to)	183-205
Journal	American Economic Journal: Macroeconomics
Volume	2
Issue number	3
DOIs	https://doi.org/10.1257/mac.2.3.183
Publication status	Published - 1 Jul 2010

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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 isroughly 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, 32).",

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