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Working Paper
Explaining Exchange Rate Anomalies in a Model with Taylor-Rule Fundamentals and Consistent Expectations
Ma, Jun; Lansing, Kevin J. (2014-09)
We introduce a form of boundedly-rational expectations into a standard asset-pricing model of the exchange rate, where cross-country interest rate differentials are governed by Taylor-type rules. We postulate that agents augment a lagged-information random walk forecast with a term that relates to news about Taylor-rule fundamentals. We solve for a ?consistent expectations equilibrium,? in which the coefficient on fundamental news in the agent?s forecast rule is pinned down using the moments of observable data. The forecast errors observed by the agent are close to white noise, making it di ...
Working Paper Series , Paper 2014-22

Report
The effect of question wording on reported expectations and perceptions of inflation
Armantier, Olivier; Downs, Julie S.; Topa, Giorgio; Van der Klaauw, Wilbert; Fischhoff, Baruch; Bruine de Bruin, Wändi (2010)
Public expectations and perceptions of inflation may affect economic decisions, and have subsequent effects on actual inflation. The Michigan Survey of Consumers uses questions about "prices in general" to measure expected and perceived inflation. Median responses track official measure of inflation, showing some tendency toward overestimation and considerable disagreement between respondents. Possibly, responses reflect how much respondents thought of salient personal experiences with specific prices when being asked about "prices in general." Here, we randomly assigned respondents to ...
Staff Reports , Paper 443

Working Paper
Scarring Body and Mind: The Long-Term Belief-Scarring Effects of COVID-19
Kozlowski, Julian; Venkateswaran, Venky; Veldkamp, Laura (2020-04-14)
The largest economic cost of the COVID-19 pandemic could arise if it changed behavior long after the immediate health crisis is resolved. A common explanation for such a long-lived effect is the scarring of beliefs. We show how to quantify the extent of such belief changes and determine their impact on future economic outcomes. We find that the long-run effect of the COVID crisis depends crucially on whether bankruptcies and changes in habit make existing capital obsolete. A policy that avoided most permanent separation of workers from capital could generate a much larger benefit than ...
Working Papers , Paper 2020-009

Report
Information heterogeneity and intended college enrollment
Bleemer, Zachary; Zafar, Basit (2014-08-01)
Despite a robust college premium, college attendance rates in the United States have remained stagnant and exhibit a substantial socioeconomic gradient. We focus on information gaps? specifically, incomplete information about college benefits and costs?as a potential explanation for these patterns. In a nationally representative survey of U.S. household heads, we show that perceptions of college costs and benefits are severely and systematically biased: 74 percent of our respondents underestimate the true benefits of college (average earnings of a college graduate relative to a non-college ...
Staff Reports , Paper 685

Discussion Paper
Coronavirus Outbreak Sends Consumer Expectations Plummeting
Koşar, Gizem; Topa, Giorgio; Van der Klaauw, Wilbert; Smith, Kyle; Pomerantz, Rachel; Armantier, Olivier; Skandalis, Daphne (2020-04-06)
The New York Fed’s Center for Microeconomic Data released results today from its March 2020 Survey of Consumer Expectations (SCE), which provides information on consumers' economic expectations and behavior. In particular, the survey covers respondents’ views on how income, spending, inflation, credit access, and housing and labor market conditions will evolve over time. The March survey, which was fielded between March 2 and 31, records a substantial deterioration in financial and economic expectations, including sharp declines in household income and spending growth expectations. As ...
Liberty Street Economics , Paper 20200406b

Report
Fundamental disagreement
Moench, Emanuel; Crump, Richard K.; Andrade, Philippe; Eusepi, Stefano (2013-12-01)
We use the term structure of disagreement of professional forecasters to document a novel set of facts: (1) forecasters disagree at all horizons, including the long run; (2) the term structure of disagreement differs markedly across variables: it is downward sloping for real output growth, relatively flat for inflation, and upward sloping for the federal funds rate; (3) disagreement is time-varying at all horizons, including the long run. These new facts present a challenge to benchmark models of expectation formation based on informational frictions. We show that these models require two ...
Staff Reports , Paper 655

Speech
A review of the experience of fielding the Survey of Consumer Expectations
McAndrews, James J. (2014-08-05)
Remarks at the Barclays Global Inflation Conference, New York City.
Speech , Paper 139

Working Paper
Is Inflation Default? The Role of Information in Debt Crises
Galli, Carlo; Bassetto, Marco (2017-03-17)
We consider a two-period Bayesian trading game where in each period informed agents decide whether to buy an asset ("government debt") after observing an idiosyncratic signal about the prospects of default. While second-period buyers only need to forecast default, first-period buyers pass the asset to the new agents in the secondary market, and thus need to form beliefs about the price that will prevail at that stage. We provide conditions such that coarser information in the hands of second-period agents makes the price of debt more resilient to bad shocks not only in the last period, ...
Working Paper Series , Paper WP-2017-6

Report
Heterogeneous inflation expectations and learning
Madeira, Carlos; Zafar, Basit (2012)
Using the panel component of the Michigan Survey of Consumers, we estimate a learning model of inflation expectations, allowing for heterogeneous use of both private information and lifetime inflation experience. ?Life-experience inflation? has a significant impact on individual expectations, but only for one-year-ahead inflation. Public information is substantially more relevant for longer-horizon expectations. Even controlling for life-experience inflation and public information, idiosyncratic information explains a nontrivial proportion of the inflation forecasts of agents. We find that ...
Staff Reports , Paper 536

Report
University choice: the role of expected earnings, non-pecuniary outcomes, and financial constraints
Delavande, Adeline; Zafar, Basit (2014-08-01)
We investigate the determinants of students? university choice, with a focus on expected monetary returns, non-pecuniary factors enjoyed at school, and financial constraints, in the Pakistani context. To mitigate the identification problem concerning the separation of preferences, expectations, and markets constraints, we combine rich data on individual-specific subjective expectations about labor market and non-pecuniary outcomes, with direct measures of financial constraints and students? stated school choice both with and without financial constraints. Estimates from a life-cycle model ...
Staff Reports , Paper 683

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