Survey Data in Macroeconomics

Transcription

1 Survey Data in Macroeconomics I. Introduction Prof. Dr. Lena Dräger Johannes Gutenberg-University Mainz, GSEFM field course 1 / 41

2 Organization of the course Organization of the Course 2 / 41

3 Organization of the course Contact Details Recht und Wirtschaft II - Raum ldraeger@uni-mainz.de Fon: Website: Office hours on demand just send me an 3 / 41

4 Organization of the course Organization of the course Lectures during the first 3 weeks Then seminar style: We ll discuss selected papers on topics using survey micro data to analyze research questions in monetary macro Students are expected to study ALL papers in the syllabus beforehand! Course requirements: Presentation of the outline for the term paper (25%) and written term paper (75%) All course materials are uploaded to my website at ( Teaching Summer Term 17) 4 / 41

5 Organization of the course Organization of the course Discuss timing to avoid overlap with Prof. von Thadden s course Note: No class on June 13, 2017! Instead: Extra class on June 20, 2017 from 2pm-3.30pm in room HoF 1.27/Dubai 5 / 41

6 Organization of the course Organization of the course I. Introduction II. Survey datasets and methodological issues III. Econometric methods for the analysis of survey microdata IV. Papers: Sociodemographic differences of households inflation expectations V. Papers: Empirical evidence of information frictions and learning 6 / 41

7 Organization of the course Organization of the course VI. Papers: Disagreement and anchoring of inflation expectations VII. Papers: Firms expectations and business choices VIII. Papers: Households understanding of monetary policy and the role of central bank communication and news IX. Papers: Households macro expectations and their consumption/saving plans X. Presentations of outlines for the term paper (last two weeks) 7 / 41

8 Organization of the course Term Paper Should be based on (one of) the core research papers given in the syllabus (or an equally well-suited paper) Should make use of a survey micro data set to either replicate part of the analysis in the core paper or to conduct an own research idea related to the topic of this course You should think about using this course as a stepping stone for your own research ideas within the PhD! Have a look at the topics and papers in the syllabus and let me know by 16 th May, 2017, which topic you choose for your term paper 8 / 41

9 Organization of the course Outline Today 1 The role of macroeconomic expectations in monetary macro 2 What is survey data? Why is survey microdata interesting for macroeconomists? Which macro questions can only be tested empirically with microdata? 3 Presentation of the topics of this course 4 Existing fields of economics using survey data that we don t cover here 9 / 41

10 The Role of Macroeconomic Expectations The Role of Macroeconomic Expectations in Monetary Macro 10 / 41

11 The Role of Macroeconomic Expectations The Role of Macroeconomic Expectations All topics discussed in this course evaluate an aspect of macroeconomic expectations, mainly inflation expectations Why are inflation expectations important for individual economic decisions? Why do central banks care about inflation expectations? Which economic agents expectations matter for which variable? How does the interaction among agents expectations influence macro outcomes and policy making? 11 / 41

12 The Role of Macroeconomic Expectations The Role of Macroeconomic Expectations Macroeconomic expectations are crucial for many economic decisions: Inflation expectations: Influence price and wage setting decisions and, therefore, current inflation Form part of real interest rates which influence investment and consumption decisions Business cycle expectations such as unemployment expectations or output (gap) expectations influence current and planned investment and consumption paths Interest rate expectations along the yield curve are important for financial investment decisions and any decision involving credit/debt 12 / 41

13 The Role of Macroeconomic Expectations Rational Expectations 60s/70s rational expectations revolution in macro theory 1 Reduces the expectation formation to a mathematical problem that can be solved within the stochastic model: p e t = E t (p t+1 I t (z)) No need to test/analyze expectations empirically Instead: Instrument with past actual data using GMM moments conditions or use data derived from financial market yields But: Both approaches have to make strong assumptions about the formation of expectations! 1 See Muth (1961), Lucas (1972, 1973, 1976) and Sargent (1973). 13 / 41

14 The Role of Macroeconomic Expectations What if expectations are not rational? Rationality tests use survey data expectations and test for: Accuracy: Mean absolute forecast errors (MAE) or root mean squared forecast errors (RMSE) should be close to zero Unbiasedness: Estimate π t = α + βπ e t 12 + ε t and test for H 0 : (α, β) = (0, 1) Efficiency: Check whether expectations incorporate all relevant information by regressing expectations errors on a set of lagged determinants and testing whether these are significant Survey expectations frequently fail all or some rationality conditions (see Thomas (1999) for a survey)! 14 / 41

15 The Role of Macroeconomic Expectations Alternative Models of Expectation Formation Sticky information: 2 p t = λ j=0 (1 λ)j E t 1 p t where λ is the constant probability of obtaining the full information set Rational inattention: 3 p i = ( ) 1 2 2κ Θ (x + εi ) where κ is the optimal amount of attention (given a marginal cost µ), s i = x + ε i is a noisy signal and the optimal price is pi = Θx Heterogeneous expectations/bounded rationality: 4 pt+1 e = H ( ) j Pt, where P t = (p t, p t 1, p t 2,...) and there are j predictors H j 2 See Mankiw and Reis (2002). 3 See Sims (2003). 4 See Brock and Hommes (1997). 15 / 41

16 The Role of Macroeconomic Expectations Macroeconomic Expectations and Monetary Policy Actual inflation is a function of inflation expectations, if people are forward-looking (at least to some degree) Easier to target inflation if expectations are less dispersed disagreement If (medium- to long-run) inflation expectations are anchored, monetary policy can stabilize the economy in the short-run without risking (medium-run) price stability importance of central bank credibility and communication! Inflation expectations determine real interest rates: r t = i t π e t at the ZLB the central bank could lower the real interest rate by raising inflation expectations! 16 / 41

17 The Use of Survey Data The Use of Survey Data 17 / 41

18 The Use of Survey Data Survey Data of Macroeconomic Expectations If expectations are not rational, we can just ask people! Qualitative expectations, Example from the Michigan Survey of Consumers: Q A12 During the next 12 months, do you think prices in general will go up, or go down, or stay where they are now? 1. Go up 2. Stay the same 3. Go down Quantitative expectations, Example from the Michigan Survey of Consumers: Q A12b By about what percent do you expect price to go up/down on the average, during the next 12 months? X percent 18 / 41

19 The Use of Survey Data Survey Data of Macroeconomic Expectations More advanced surveys of expectations include: Quantitative bins where participants assign probabilities, e.g. inflation between [-1,0% ]; [0,1% ]; [1,2% ] etc. Gives individual probability distributions of expectations Measure of individual forecast uncertainty Better estimate of mean forecast More detailed qualitative categories Different wordings regarding changes in prices/inflation rate Panel dimension?! 19 / 41

20 The Use of Survey Data Survey Data Topics in this Course Topics in this course focus on questions relevant for (monetary) macroeconomics The literature surveyed analyzes subjective survey data: Macroeconomic expectations, mainly inflation expectations Subjective reasons, e.g. for investment Subjective news observed by the survey participant Objective survey data is used as control variables: Socio-demographic data such as gender, education, income, age Family background Wealth Employment etc. 20 / 41

21 The Use of Survey Data Relevant Surveys Existing Surveys record the macroeconomic expectations of professional forecasters, households and firms (to a lesser extent) Data is often qualitative Also surveyed: Socio-demographic background including wealth information, news, current and planned consumption/saving/investment, literacy / 41

22 The Use of Survey Data Relevant Surveys Professional forecasters: SPF US (Philadelphia Fed), SPF Eurozone (ECB), Consensus Economics & Blue Chip (not fully publicly available) Households: University of Michigan Survey of Consumers (US), Survey of Consumer Expectations (US at New York Fed, relatively new), Joint Harmonised EU Programme of Business and Consumer Surveys (most EU countries, microdata not always available), British Household Panel, Household Finance and Consumption Network (ECB, German Survey is Panel of Household Finances (PHF) at the Bundesbank, relatively new) Firms: There are some, but they are generally harder to get access to. For instance: ifo Survey (Germany), survey of New Zealand Firms by Coibion, Gorodnichenko & Kumar, Duke University Survey of Chief Financial Officers (CFO), Industrial Trends Survey by the Confederation of British Industry (UK), Survey on Inflation and Growth Expectations (Banca d Italia) 22 / 41

23 The Use of Survey Data Why is Survey Microdata Interesting for Macroeconomists? Microdata can be used to analyze several important macroeconomic issues not visible in aggregate survey data: 1 Heterogeneity: How do macroeconomic expectations differ across socio-demographic groups? Are they anchored in the same way? Do different socio-demographic groups face different individual inflation rates? Does central bank communication and macroeconomic news reach all consumers in the same way? What about (macro)economic and financial literacy? 23 / 41

24 The Use of Survey Data Why is Survey Microdata Interesting for Macroeconomists? 2 Disagreement: How does the dispersion of expectations within the cross-section (disagreement) vary over the business cycle? How is disagreement linked to forecast accuracy? Is disagreement regarding the expectations on several macroeconomic variables linked as we might expect from economic theory? Can monetary policy influence the degree of disagreement? 24 / 41

25 The Use of Survey Data Why is Survey Microdata Interesting for Macroeconomists? 3 Expectation formation: Which micro-founded model of expectation formation fits individual expectations best? This needs a panel dimension so we can observe individual changes in expectations over time Is there evidence of imperfect information and, if so, which type? Are expectations anchored and how does the degree of anchoring evolve over time? 4 Do agents act on their expectations? How are macroeconomic expectations linked to agents economic decisions at the individual level? We can use these links to test economic theory like the Euler equation Do consumers consider their inflation and business cycle expectations when they take decisions about current and future consumption and saving? Do firm decision makers consider their inflation expectations when they set prices and when they take decisions about investment? 25 / 41

26 Topics of this Course Topics of this Course 26 / 41

27 Topics of this Course Topics of this Course 1 Inflation expectations of households across demographic groups Jonung (1981); Souleles (2004); Ehrmann et al. (2015) 2 Macroeconomic expectation formation Evidence of information frictions Coibion and Gorodnichenko (2012, 2015a); Andrade and Le Bihan (2013); Andrade et al. (2016) 3 Macroeconomic expectation formation Evidence of learning Malmendier and Nagel (2011, 2016) 4 Disagreement and the anchoring of inflation expectations Dovern et al. (2012); Easaw et al. (2013); Kumar et al. (2015) 27 / 41

28 Topics of this Course Topics of this Course 5 Firms macroeconomic expectations and their business choices Bachmann et al. (2013); Coibion et al. (2015) 6 Households understanding of monetary policy and the importance of central bank communication and news Carvalho and Nechio (2014); Coibion and Gorodnichenko (2015b); Dräger et al. (2016) 7 Households consumption plans and the role of their macroeconomic expectations Bachmann et al. (2015); Ichiue and Nishiguchi (2015); D Acunto et al. (2016); Crump et al. (2015); Dräger (2016) 28 / 41

29 Other Fields of Economics Using Survey Data Other Fields of Economics Using Survey Data not Covered Here 29 / 41

30 Other Fields of Economics Using Survey Data Other Fields of Economics Using Survey Data Labour economics: Labour market flows Wage dynamics Family economics Firm decisions: Micro price data Subjective business climate (e.g. ifo index) Household decisions: Portfolio choices Income, wealth and consumption inequality Consumption choices Life-cycle economics 30 / 41

31 Other Fields of Economics Using Survey Data Other Fields of Economics Using Survey Data Banking: Subjective lending conditions Banks balance sheet Housing market flows Etc.!! 31 / 41

32 Other Fields of Economics Using Survey Data Literature I Andrade, P., R. K. Crump, S. Eusepi, and E. Moench (2016). Fundamental disagreement. Journal of Monetary Economics 83, Andrade, P. and H. Le Bihan (2013). Inattentive professional forecasters. Journal of Monetary Economics 60(8), Bachmann, R., T. O. Berg, and E. R. Sims (2015). Inflation expectations and readiness to spend: Cross-sectional evidence. American Economic Journal: Economic Policy 7(1), Bachmann, R., S. Elstner, and E. R. Sims (2013). Uncertainty and Economics Activity: Evidence from Business Survey Data. American Economic Journal: Macroeconomics 5(2), / 41

33 Other Fields of Economics Using Survey Data Literature II Brock, W. A. and C. H. Hommes (1997). A rational route to randomness. Econometrica 65(5), Carvalho, C. and F. Nechio (2014). Do People Understand Monetary Policy? Journal of Monetary Economics 66, Coibion, O. and Y. Gorodnichenko (2012). What Can Survey Forecasts Tell Us About Information Rigidities? Journal of Political Economy 120(1), Coibion, O. and Y. Gorodnichenko (2015a). Information rigidity and the expectation formation process: A simple framework and new facts. American Economic Review 105(8), / 41

34 Other Fields of Economics Using Survey Data Literature III Coibion, O. and Y. Gorodnichenko (2015b). Is the Phillips Curve Alive and Well After All? Inflation Expectations and the Missing Disinflation. AEJ: Macroeconomics 7(1), Coibion, O., Y. Gorodnichenko, and S. Kumar (2015). How Do Firms Form Their Expectations? New Survey Evidence. NBER Working Paper Crump, R. K., S. Eusepi, A. Tambalotti, and G. Topa (2015). Subjective Intertemporal Substitution. Federal Reserve Bank of New York Staff Reports / 41

35 Other Fields of Economics Using Survey Data Literature IV D Acunto, F., D. Hoang, and M. Weber (2016). Unconventional Fiscal Policy, Inflation Expectations, and Consumption Expenditure. Technical Report 5793, CESifo Working Paper. Dovern, J., U. Fritsche, and J. Slacalek (2012). Disagreement Among Forecasters in G7 Countries. The Review of Economics and Statistics 94(4), Dräger, L. (2016). Are Consumers Planning Consumption According to an Euler Equation? CESifo Working Paper / 41

36 Other Fields of Economics Using Survey Data Literature V Dräger, L., M. J. Lamla, and D. Pfajfar (2016). Are Survey Expectations Theory-Consistent? The Role of Central Bank Communication and News. European Economic Review 85(C), Easaw, J., R. Golinelli, and M. Malgarini (2013). What determines households inflation expectations? theory and evidence from a household survey. European Economic Review 61, Ehrmann, M., D. Pfajfar, and E. Santoro (2015). Consumers attitudes and their inflation expectations. Finance and Economics Discussion Series , Federal Reserve Board. 36 / 41

37 Other Fields of Economics Using Survey Data Literature VI Ichiue, H. and S. Nishiguchi (2015). Inflation Expectations and Consumer Spending at the Zero Bound: Micro Evidence. Economic Inquiry 53(2), Jonung, L. (1981). Perceived and Expected Rates of Inflation in Sweden. American Economic Review 71(5), Kumar, S., H. Afrouzi, O. Coibion, and Y. Gorodnichenko (2015). Inflation Targeting Does Not Anchor Inflation Expectations: Evidence from Firms in New Zealand. Brookings Papers on Economic Activity Fall, / 41

38 Other Fields of Economics Using Survey Data Literature VII Lucas, R. E. (1972). Expectations and the Neutrality of Money. Journal of Economic Theory 4(2), Lucas, R. E. (1973). Some International Evidence on Output-Inflation Tradeoffs. American Economic Review 63(3), Lucas, R. E. (1976). Econometric Policy Evaluation: A Critique. Carnegie-Rochester Conference Series on Public Policy 1(1), Malmendier, U. and S. Nagel (2011). Depression Babies: Do Macroeconomic Experiences Affect Risk Taking? The Quarterly Journal of Economics 126, / 41

39 Other Fields of Economics Using Survey Data Literature VIII Malmendier, U. and S. Nagel (2016). Learning from inflation experiences. The Quarterly Journal of Economics 131(1), Mankiw, N. G. and R. Reis (2002). Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve. Quarterly Journal of Economics 117(4), Muth, J. F. (1961). Rational Expectations and the Theory of Price Movements. Econometrica 29(3), / 41

40 Other Fields of Economics Using Survey Data Literature IX Sargent, T. J. (1973). Rational expectations, the real rate of interest, and the natural rate of unemployment. Brookings Papers on Economic Activity 4(2), Sims, C. A. (2003). Implications of Rational Inattention. Journal of Monetary Economics 50(3), Souleles, N. S. (2004). Expectations, Heterogenous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys. Journal of Money, Credit, and Banking 36(1), / 41

41 Other Fields of Economics Using Survey Data Literature X Thomas, L. (1999). Survey Measures of Expected U.S. Inflation. Journal of Economic Perspectives 13(4), / 41