Konferenzbeitrag

Growth expectations, undue optimism, and short-run fluctuations

Expectations matter for economic activity. To the extent that they are fundamentally unwarranted, they represent "undue optimism or pessimism" (Pigou, 1927). In this paper, we identify empirically the effect of undue optimism/pessism ("optimism shocks") on economic activity. In a first step, we compute an expectation error regarding current economic activity: the difference of the Ifo index of economic activity and its consensus forecast, compiled simultaneously and independently. The resulting "Ifo innovations" may represent either fundamental innovations or optimism shocks. In a second step, we impose long-run restrictions on a VAR model to disentangle the effects of both shocks. We find that optimism shocks - in line with theory - reduce Ifo innovations, but raise economic activity. They account for up to 30% of short-run fluctuations in industrial production.

Language
Englisch

Bibliographic citation
Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Expectation and Fluctuations ; No. C21-V1

Classification
Wirtschaft
Business Fluctuations; Cycles
Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Business Fluctuations; Cycles

Event
Geistige Schöpfung
(who)
Enders, Zeno
Kleemann, Michael
Müller, Gernot
Event
Veröffentlichung
(who)
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
(where)
Kiel und Hamburg
(when)
2013

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Konferenzbeitrag

Associated

  • Enders, Zeno
  • Kleemann, Michael
  • Müller, Gernot
  • ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft

Time of origin

  • 2013

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