Learning And Judgment Shocks In U.S. Business Cycles
Source: Munich Personal Repec Archive
This paper examines the role of judgment shocks in combination with other structural shocks in explaining post-war economic volatility within the context of a New Keynesian model. Agents form expectations using constant gain learning then augment these forecasts with judgment. These judgments may be interpreted as a reaction to current news stories or policy announcements that would influence people's expectations. The author allows for the possibility that these judgments be informatively based on information about structural shocks, but judgment itself may also be subject to its own stochastic shocks.