TY - JOUR

T1 - Subjective Models of the Macroeconomy

T2 - Evidence from Experts and Representative Samples

AU - Andre, Peter

AU - Pizzinelli, Carlo

AU - Roth, Christopher

AU - Wohlfart, Johannes

N1 - Publisher Copyright: © 2022 The Author(s). Published by Oxford University Press on behalf of The Review of Economic Studies Limited.

PY - 2022/11/1

Y1 - 2022/11/1

N2 - We study people's subjective models of the macroeconomy and shed light on their attentional foundations. To do so, we measure beliefs about the effects of macroeconomic shocks on unemployment and inflation, providing respondents with identical information about the parameters of the shocks and previous realizations of macroeconomic variables. Within samples of 6,500 US households and 1,500 experts, beliefs are widely dispersed, even about the directional effects of shocks, and there are large differences in average beliefs between households and experts. Part of this disagreement seems to arise because respondents think of different propagation channels of the shocks, in particular demand- vs. supply-side mechanisms. We provide evidence on the role of associative memory in driving heterogeneity in thoughts and forecasts: contextual cues and prior experiences shape which propagation channels individuals retrieve and thereby which forecasts they make. Our findings offer a new perspective on the widely documented disagreement in macroeconomic expectations.

AB - We study people's subjective models of the macroeconomy and shed light on their attentional foundations. To do so, we measure beliefs about the effects of macroeconomic shocks on unemployment and inflation, providing respondents with identical information about the parameters of the shocks and previous realizations of macroeconomic variables. Within samples of 6,500 US households and 1,500 experts, beliefs are widely dispersed, even about the directional effects of shocks, and there are large differences in average beliefs between households and experts. Part of this disagreement seems to arise because respondents think of different propagation channels of the shocks, in particular demand- vs. supply-side mechanisms. We provide evidence on the role of associative memory in driving heterogeneity in thoughts and forecasts: contextual cues and prior experiences shape which propagation channels individuals retrieve and thereby which forecasts they make. Our findings offer a new perspective on the widely documented disagreement in macroeconomic expectations.

KW - Associations

KW - Attention

KW - D83

KW - D84

KW - E31

KW - E52

KW - E71

KW - Expectation formation

KW - Experiences

KW - Fiscal policy

KW - Macroeconomic shocks

KW - Monetary policy

KW - Subjective models

KW - Thoughts

UR - http://www.scopus.com/inward/record.url?scp=85131845396&partnerID=8YFLogxK

U2 - 10.1093/restud/rdac008

DO - 10.1093/restud/rdac008

M3 - Review

AN - SCOPUS:85131845396

VL - 89

SP - 2958

EP - 2991

JO - Review of Economic Studies

JF - Review of Economic Studies

SN - 0034-6527

IS - 6

ER -