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Department ofEconomics

Expectation-driven boom-bust cycles

Vito Cormun and Marco Brianti

Journal of Monetary Economics 146, September 2024

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Abstract:

Using data from the Survey of Professional Forecasters, we observe that a large fraction of analysts’ expectations about future economic growth is not due to technology or other shocks to fundamentals measured by the business cycle literature. We find that these unexplained changes in forecast revisions predict significant boom-bust dynamics in the key macroeconomic aggregates. We offer a novel theory where boom-bust dynamics stem from expectation shocks orthogonal to fundamentals.

LSB Research, ECON, Vito Crormun, 2024