Abstract
We conduct a laboratory experiment in a micro-founded macroeconomic model where participants receive public announcements about future government spending shocks, and are tasked with repeatedly forecasting output over a given horizon. By eliciting several-period-ahead predictions, we can investigate forecast revisions in relation to these announcements. We find that subjects learn the magnitude of the effect of the shocks on output, albeit not with perfect accuracy. We find micro-level evidence that they persistently underreact to the announcements in a way consistent with sticky information, but find little support for fully backward-looking expectations. We rationalize the experimental data with a Bayesian updating model, which provides a particularly good description of the behaviors in longer-horizon environments and among attentive, experienced, and effortful subjects.
| Original language | English |
|---|---|
| Article number | 104948 |
| Number of pages | 20 |
| Journal | European Economic Review |
| Volume | 172 |
| Early online date | 16 Jan 2025 |
| DOIs | |
| Publication status | Published - 28 Feb 2025 |
Bibliographical note
Publisher Copyright:© 2025 The Authors
Data Availability Statement
The experimental data, the experimental software, and the full replication package are openly available on Mendeley Data, with DOI:https://doi.org/10.17632/k3kg9jsrgt.2.
Acknowledgements
The views expressed in this paper are those of the authors and do not necessarily reflect those of the Deutsche Bundesbank. The research reported in the paper was approved by the Research Ethics Board of CREED at the University of Amsterdam (number EX1828). Declaration of interest: none. We thank Ibrahim Abuallail for excellent research assistance.Funding
Financial support from the Canada Research Chair program and the Deutsche Bundesbank is gratefully acknowled
Keywords
- Expectations
- Lab experiments
- Learning
ASJC Scopus subject areas
- Finance
- Economics and Econometrics