Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of New York
Staff Reports
Personal experiences and expectations about aggregate outcomes
Theresa Kuchler
Basit Zafar
Abstract

We use novel survey data to estimate how personal experiences affect household expectations about aggregate economic outcomes in housing and labor markets. We exploit variation in locally experienced house prices to show that individuals systematically extrapolate from recent locally experienced home prices when asked for their expectations about U.S. house price changes over the next year. In addition, higher volatility of locally experienced house prices causes respondents to report a wider distribution over expected future national house price movements. We find similar results for labor market expectations, where we exploit within-individual variation in labor market status to estimate the effect of own experience on national labor market expectations. Personally experiencing unemployment leads respondents to be significantly more pessimistic about future nationwide unemployment. The extent of extrapolation is unrelated to proxies for how informative personal experiences are, and is more pronounced for less sophisticated individuals.


Download Full text
Cite this item
Theresa Kuchler & Basit Zafar, Personal experiences and expectations about aggregate outcomes, Federal Reserve Bank of New York, Staff Reports 748, 01 Oct 2015.
More from this series
JEL Classification:
Subject headings:
Keywords: expectation formation; extrapolation
For corrections, contact Amy Farber ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal