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Paper #1084

Do expectations matter? The Great Moderation revisited
Fabio Canova i Luca Gambetti
Novembre 2007 (Revisió: Gener 2009)
We examine the role of expectations in the Great Moderation episode. We derive theoretical restrictions in a New-Keynesian model and test them using measures of expectations obtained from survey data, the Greenbook and bond markets. Expectations explain the dynamics of inflation and of interest rates but their importance is roughly unchanged over time. Systems with and without expectations display similar reduced form characteristics. Including or excluding expectations hardly changes the economic explanation of the Great Moderation. Results are robust to changes in the structure of the empirical model.
Paraules clau:
Indeterminacy, Expectations, Term structure, Structural VARs, Sunspot
Codis JEL:
C11, E12, E32, E62
Àrea de Recerca:
Macroeconomia i Economia Internacional

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