Growth expectations, undue optimism, and short-run fluctuations
We assess whether "undue optimism" (Pigou) contributes to business cycle fluctuations. In our analysis, optimism (or pessimism) pertains to total factor productivity which determines economic activity in the long run. Optimism shocks are perceived changes in productivity which do not actua...
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| Main Authors: | , , |
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| Format: | Book/Monograph Working Paper |
| Language: | English |
| Published: |
Frankfurt am Main
Deutsche Bundesbank
[16.05.2017]
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| Series: | Discussion paper / Deutsche Bundesbank
no 2017, 11 |
| In: |
Discussion paper (no 2017, 11)
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| Subjects: | |
| Online Access: | Resolving-System, Volltext: http://hdl.handle.net/10419/158018 Verlag, Volltext: http://www.bundesbank.de/Redaktion/EN/Downloads/Publications/Discussion_Paper_1/2017/2017_05_16_dkp_11.pdf?__blob=publicationFile 
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| Author Notes: | Zeno Enders (University of Heidelberg and CESifo), Michael Kleemann (Deutsche Bundesbank), Gernot J. Müller (University of Tübingen, CEPR and CESifo) |
| Summary: | We assess whether "undue optimism" (Pigou) contributes to business cycle fluctuations. In our analysis, optimism (or pessimism) pertains to total factor productivity which determines economic activity in the long run. Optimism shocks are perceived changes in productivity which do not actually materialize. We develop a new strategy to identify optimism shocks in a VAR model. It is based on nowcast errors regarding current output growth, that is, the difference between actual growth and the real-time prediction of professional forecasters. We find that optimism shocks - in line with theory - generate a negative nowcast error, but simultaneously a positive short-run output response. |
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| Physical Description: | Online Resource |
| ISBN: | 9783957293596 |