Working Papers

Expectations and Forecasts: The Role of Strategic Incentives [Draft]

Abstract. This study proposes a novel approach to interpret conventional tests of the Full Information Rational Expectations (FIRE) hypothesis, based on the distinctions between forecasts and expectations. First, I point out that these two objects coincide under very restrictive conditions that are unrealistic in the context of professional forecasting. Evidence from reduced-form analysis suggests that forecasters pursue strategic incentives when responding to surveys, contaminating their responses and making their use as measures of expectations misleading. I use this distinction to introduce a new parsimonious model of forecast formation that is closely related to rational inattention and sparsity-based models of bounded rationality, but that is exempt from the complications related to objects as the optimal attention vector. The proposed framework uses a global game structure featuring public and private information and the strategic behavior of forecasters. Strategy can account for the puzzling evidence provided by Coibion and Gorodnichenko (2015) type regressions and suggests prudence when using surveys to elicit expectations.

Peace through Strength: the regional effects of Trump's military build-up  (co-authored with Edoardo Briganti)

[Draft coming soon] – Abstract. The main propagation channel of government spending shocks in both the Neo-Classical and Neo-Keynesian model is a negative wealth effect that acts through agents' anticipation of the real effects of the shocks (Woodford (2011)). The presence of forward-looking agents implies that when news of future spending reaches households, they react by increasing labor supply in response to future higher taxes. Therefore, GDP moves even before any federal dollar is spent. Nonetheless, the literature has not reached a consensus, and the role played by expectations of future government spending on current economic activity is highly debated. This paper studies Donald Trump's presidential victory in 2016  to identify a large shock to the expectations about the future path of defense spending, which hits US regions differently. It then uses this heterogeneity to investigate the effects on a series of measures of real activity. 

Disagreement in Forecasting  (co-authored with Ritong Qu and Allan Timmermann)

[Draft coming soon] – Abstract. This study conducts a thorough investigation of empirical regularities in cross-sectional heterogeneity in forecasting. It proposes a novel model of forecast formation that aims to shed light on the key factors influencing the documented forecasting patterns in behavioral macro-finance.

The missing model: individual predictability in Coibion-Gorodnichenko regressions (co-authored with Tyler Paul)

Abstract. In regressions à la Coibion-Gorodnichenko, the distinction between the consensus and individual level of analysis is first-order: while at the consensus level the empirical results are straightforward to interpret due to the theoretical guidance offered by models of information rigidities, as sticky or noisy information, at the individual level we lack such mapping from the data moments to their structural counterparts. This paper advances a more general, unified framework to interpret individual coefficients without resorting to ad-hoc behavioral or non-rational explanations.

Confidence and House Prices

[Draft coming soon] – Abstract. What share of the fluctuations in real estate prices cannot be rationalized by the most commonly imputed economic factors? How much should we care about the "animal spirits", intended as exogenous fluctuations in agents' beliefs, when studying the origination of financial crises?  The goal of this paper is to assess the role of confidence in understanding the boom-bust dynamics of credit and house prices in the United States, with a focus on the Great Financial Crisis.