Expectations and Economic Fluctuations: An Analysis Using Survey Data

2010-09 | February 1, 2010

Using survey-based measures of future U.S. economic activity from the Livingston Survey and the Survey of Professional Forecasters, we study how changes in expectations, and their interaction with monetary policy, contribute to fluctuations in macroeconomic aggregates. We find that changes in expected future economic activity are a quantitatively important driver of economic fluctuations: a perception that good times are ahead typically leads to a significant rise in current measures of economic activity and inflation. We also find that the short-term interest rate rises in response to expectations of good times as monetary policy tightens. Our results provide quantitative evidence on the importance of expectations-driven business cycles and on the role that monetary policy plays in shaping them.

Article Citation

Sill, Keith, and Sylvain Leduc. 2010. “Expectations and Economic Fluctuations: An Analysis Using Survey Data,” Federal Reserve Bank of San Francisco Working Paper 2010-09. Available at https://doi.org/10.24148/wp2010-09

About the Author
Sylvain Leduc
Sylvain Leduc is executive vice president and director of Economic Research at the Federal Reserve Bank of San Francisco. Learn more about Sylvain Leduc