Households' Forming Subjective Expectations Using Perceived News: Do Shocks to 'Good' News Matter More Than 'Bad' News?. (1st November 2012)

• Record Type: Journal Article
• Authors: Easaw, Joshy; Ghoshray, Atanu; Heravi, Saeed
• Is Part Of: Manchester school. Volume 82:Number 1(2014:Jan.)
• Page Start: 1
• Page End: 16
• Publication Date: 2012-11-01
• Subjects: Economics -- Periodicals; Social sciences -- Periodicals; Economics -- Sociological aspects -- Periodicals; 330.05
• DOI: 10.1111/j.1467-9957.2012.02333.x
• Languages: English
• ISSNs: 1463-6786

Abstract

<abstract abstract-type="main" xml:lang="en"> <title> <x xml:space="preserve">Abstract</x> </title> <p>The present paper examines the microfoundations of how households form subjective expectations about the macroeconomy using a novel survey‐based data set. In particular, we are interested in the role of perceived news. The paper outlines a model where households may give unequal importance (or weights) to 'good' and 'bad' news. We also consider whether the relationship is state‐varying and has any structural changes. The ensuing empirical investigation uses time‐varying smooth transition autoregressive models. We find that weights given to the news are state‐varying, with little, or no, weight given to bad news. There is also a clear structural change in the relationship after September 2001.</p> </abstract>