Working Paper

The importance of time series extrapolation for macroeconomic expectations

Authors

  • Michael W.M. Roos
  • Ulrich Schmidt
Publication Date

This paper presents a simple experiment on how laypeople form macroeconomic expectations. Subjects have to forecast inflation and GDP growth. By varying the information provided in different treatments, we can assess the importance of historical time-series information versus 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.

Kiel Institute Expert

Info

JEL Classification
D83, D84, E37

Key Words

  • expectations
  • inflation forecasts
  • macroeconomic experiment
  • use of information