Households' forming subjective expectations using perceived news: do shocks to ‘good’ news matter more than ‘bad’ news?

Easaw, Joshy ORCID: https://orcid.org/0000-0003-3476-4300, Ghoshray, Atanu and Heravi, Saeed ORCID: https://orcid.org/0000-0002-0198-764X 2014. Households' forming subjective expectations using perceived news: do shocks to ‘good’ news matter more than ‘bad’ news? The Manchester School 82 (1) , pp. 1-16. 10.1111/j.1467-9957.2012.02333.x

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Abstract

The present paper examines the microfoundations of how households form subjective expectations about the macroeconomy using a novel survey-based data set. In particular, we are interested in the role of perceived news. The paper outlines a model where households may give unequal importance (or weights) to ‘good’ and ‘bad’ news. We also consider whether the relationship is state-varying and has any structural changes. The ensuing empirical investigation uses time-varying smooth transition autoregressive models. We find that weights given to the news are state-varying, with little, or no, weight given to bad news. There is also a clear structural change in the relationship after September 2001.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords:	household expectations formation, perceived news, TV-STAR model.
Additional Information:	Pdf uploaded in accordance with publisher's policies at http://www.sherpa.ac.uk/romeo/issn/1463-6786/ (accessed 9.1.15). Article first published online: 1 Nov. 2012
Publisher:	Wiley
ISSN:	1467-9957
Date of First Compliant Deposit:	30 March 2016
Last Modified:	26 Nov 2024 05:30
URI:	https://orca.cardiff.ac.uk/id/eprint/37872

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