Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247915 
Year of Publication: 
2021
Series/Report no.: 
Staff Report No. 992
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
Economic theory predicts that intertemporal decisions depend critically on expectations about future outcomes. Using the universe of professional survey forecasts for the United States, we document the behavior of the entire term structure of expectations for output growth, inflation, and the policy rate. We show that a simple unobserved components model of the trend and cycle explains the joint behavior of both consensus measures of expectations and the observed disagreement among individual forecasters. Importantly, univariate models of each variable are outperformed by a multivariate model of the joint dynamics of these three variables, particularly for nominal interest rates. Consistent with the data, the model predicts a link between revisions in long-run expectations to short-term forecast errors. In structural models, learning about the long run has important empirical and theoretical implications for monetary and fiscal policy.
Subjects: 
expectation formation
imperfect information
survey forecasts
shifting endpoint models
monetary policy
term premiums
JEL: 
D83
D84
E32
E43
E44
G12
Document Type: 
Working Paper

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