TV Weather Forecast or Look through the Window? Expert and Consumer Expectations about Macroeconomic Conditions

This paper investigates the empirical relation between consumer and expert expectations about macroeconomic conditions in Germany. Using data from the EU Consumer Confidence Survey and the ZEW business expectations, static models and error-correction models are estimated explaining consumer expectations as functions of expert expectations, consumer retrospections, and lagged consumer expectations. It's found that consumer expectations are only weakly related to expert expectations, but strongly influenced by consumers' retrospections. Consumers primarily extrapolate perceptions about current economic conditions in the future. However, during national election campaigns, the relation between consumer and expert expectations is stronger. Copyright 2005 Blackwell Publishing Ltd..