Working Paper: NBER ID: w1090
Authors: Thomas Urich; Paul Wachtel
Abstract: This paper examines the structure of expectations of the weekly money supply announcement in the late 1970s. The data used are from a weekly telephone survey of money market participants. The rationality and structure of expectations are explored with the data organized in three ways:the mean response to each weekly survey, the pooled sample of individual responses, and time series of responses by each individual in the survey.The effect of data aggregation on rationality tests is investigated. The structure of the expectations data are also examined and it is found that both strong regressive influences and adaptive learning characterize the data.
Keywords: money supply; expectations; financial markets; forecast rationality
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| past money supply changes (E51) | current expectations (D84) |
| expected change in money supply forecasts (m) (E47) | actual changes in money supply (E51) |
| forecasts are unbiased (C53) | expected change aligns with actual change (O30) |
| pooled sample of survey means suggests unbiasedness (C83) | individual forecasts show systematic errors (C53) |
| prior changes in money supply (E41) | reduce forecast errors (C53) |
| forecast errors (C53) | adjustments in expectations over time (D84) |
| individual respondents exhibit biases (D91) | forecasts are generally efficient (G17) |
| adaptive learning and regressive influences (D91) | expectations formation process (D84) |