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Animal spirits: the effect of economic expectations on economic output

Animal spirits: the effect of economic expectations on economic output The public is characterized as able forecasters of future economic performance. They engage in rational expectations. Empirical evidence exists to bolster the claim. This article considers the possibility that the public does more than predict economic output. They may engage in a self-fulfilling prophecy where belief about the future economy translates into personal financial behaviour (e.g., consumption and investment) that actually drives economic performance. After controlling for rational expectations with elite forecasts, leading indicators and past economic performance, it is shown that between 5% and one-third of the variance in economic output can be explained by prospective economic sentiment. This result has broad implications for electoral behaviour research. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Economics Taylor & Francis

Animal spirits: the effect of economic expectations on economic output

Applied Economics , Volume 43 (25): 17 – Oct 1, 2011
17 pages

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References (36)

Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1466-4283
eISSN
9999-7004
DOI
10.1080/00036841003670739
Publisher site
See Article on Publisher Site

Abstract

The public is characterized as able forecasters of future economic performance. They engage in rational expectations. Empirical evidence exists to bolster the claim. This article considers the possibility that the public does more than predict economic output. They may engage in a self-fulfilling prophecy where belief about the future economy translates into personal financial behaviour (e.g., consumption and investment) that actually drives economic performance. After controlling for rational expectations with elite forecasts, leading indicators and past economic performance, it is shown that between 5% and one-third of the variance in economic output can be explained by prospective economic sentiment. This result has broad implications for electoral behaviour research.

Journal

Applied EconomicsTaylor & Francis

Published: Oct 1, 2011

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