Asymmetric Attention

Over-reaction in Macroeconomic Expectations

“…In contrast, Fuhrer (2017) argues that in the SPF data, individual forecast revisions can be negatively predicted from past deviations relative to consensus. Kohlhas and Walther (2018) also offer a model of asymmetric loss functions. We discuss these issues in Sections 3.2 and 5. individual over-reaction in forecasts for GDP and inflation.…”

Myopia and Anchoring

“…At the same time, we explain why the evidence on the under-reaction of average forecasts provided in CG is more "reliable" for our purposes than the conflicting evidence on the over-reaction of individual forecasts provided in Bordalo et al (2020) and Broer and Kohlhas (2019). In an extension that adds a behavioral element as in those papers (a form of overconfidence), we can vary the theory's implications about individual forecasts without varying the structural relation between average forecasts and aggregate outcomes.…”

“…More challenging is the evidence presented in Kohlhas and Walther (2019). In direct contradiction to CG's message, these authors argue that expectations over-react in the sense that average forecasts errors are negatively correlated with past outcomes.…”

“…While connecting the theory to the available evidence on expectations, we clarified which such evidence is best suited for the purpose of quantifying the distortions of interest: it is evidence on average forecasts, such as that provided in Coibion and Gorodnichenko (2015), as opposed to evidence on individual forecasts, such as that provided in Bordalo et al 2020and Broer and Kohlhas (2019). Left outside this paper was a more comprehensive investigation of the lessons contained in surveys of expectations for macroeconomic theory.…”

“…Bordalo et al (2020) and Broer and Kohlhas (2019) Suppose, now, that the analyst knows all parameters exceptσ and σ and wishes to quantify the equilibrium effects of the friction under consideration (as we do, for example, in Section 6). Suppose further that the analyst combines the CG coefficient with the individual-level counterpart estimated in Bordalo et al (2020) and Broer and Kohlhas (2019). Then, the CG coefficient alone allows the identification ofσ and the quantification of its effect on the actual dynamics.…”