Title: Macroeconomic literacy and expectations
Authors: Luba Petersen - Simon Fraser University (Canada) [presenting]
Michael Mirdamadi - University of Western Ontario (Canada)
Abstract: The effects of macroeconomic literacy on expectation formation is explored in an experimental economy where participants' aggregated expectations endogenously influence macroeconomic variables. We systematically vary the information participants receive about the economy's data-generating process (no information, qualitative information, and quantitative information) and the predictability of the economy. Our experimental results suggest there are many advantages to providing precise quantitative training about the macroeconomy. Compared to an environment where forecasters have no initial information about the structure of the economy, quantitative information about the underlying data-generating process consistently reduces inflation forecast errors, reduce disagreements about inflation, and encourages a larger reaction to past forecast errors. Inflation variability is on average lower with quantitative information. Qualitative information, by contrast, is inconsistently effective at influencing forecasting behavior.