Macroeconomic vulnerability and disagreement in expectations

Cristian Badarinza and Marco Gross

No 1407, Working Paper Series from European Central Bank

Abstract: In this paper we discuss the role of the cross-sectional heterogeneity of beliefs in the context of understanding and assessing macroeconomic vulnerability. Emphasis lies on the potential of changing levels of disagreement in expectations to influence the propensity of the economy to switch between different regimes, a hypothesis that finds robust empirical support from a regime-switching model with endogenous transition probabilities for output growth and realized stock market volatility in the US. JEL Classification: C53, D8, E32

Keywords: business cycles; endogenous transition probabilities; forecasting; Heterogeneous beliefs; regime-switching (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-cba and nep-mac
Note: 3098116
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20111407

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