Expectation Formation Following Large Unexpected Shocks
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| Authors | S. Richard Baker, Tucker S. McElroy, Xuguang Simon Sheng |
| Journal/Conference Name | Review of Economics and Statistics |
| Paper Category | Social Sciences |
| Paper Abstract | By matching a large database of individual macro-forecaster data with the universe of sizable natural disasters across 54 countries, we identify a set of new stylized facts: (i) forecasters are persistently heterogeneous in how often they issue or revise a fore-cast; (ii) information rigidity declines significantly following large, unexpected natural disaster shocks; (iii) disagreement decreases among inattentive agents while it might increase for attentive ones. We develop a learning model that captures the two channel-s through which natural disaster shocks affect expectation formation: attention effect – the visibly large shocks induce immediate and synchronized updating of informa-tion for inattentive agents, and uncertainty effect – attentive agents might increase their acquisition of private information to compensate for the higher uncertainty after shocks. |
| Date of publication | 2019 |
| Code Programming Language | R |
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