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Expectations Formation and Business Cycle Fluctuations: An Empirical Analysis of Actual and Expected Output in UK Manufacturing, 1975–1996

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  • Kevin Lee
  • Kalvinder Shields
Abstract
Direct measures of expectations, derived from survey data, are used in a Vector Autoregressive (VAR) model of actual and expected output in eight industries in the UK manufacturing sector. No evidence is found with which to reject rationality in the derived expectations series when measurement error is appropriately taken into account. The VAR analysis illustrates the importance of intersectoral interactions and business confidence in explaining the time profile of industrial outputs, examines the mechanisms by which shocks are propagated across sectors and over time and investigates the relative importance of sectoral and aggregate shocks of different types.

Suggested Citation

  • Kevin Lee & Kalvinder Shields, 2000. "Expectations Formation and Business Cycle Fluctuations: An Empirical Analysis of Actual and Expected Output in UK Manufacturing, 1975–1996," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(4), pages 463-490, September.
    • Handle: RePEc:bla:obuest:v:62:y:2000:i:4:p:463-490
    DOI: 10.1111/1468-0084.00183
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    Cited by:

    1. Paul Frijters & John P. Haisken-DeNew & Michael Shields, 2003. "How Well Do Individuals Predict Their Future Life Satisfaction? Rationality and Learning Following a Nationwide Exogenous Shock," CEPR Discussion Papers 468, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    2. Kevin Lee & Kalvinder Shields, 2004. "Business survey forecasts and measurement of output trends in five European economies," Money Macro and Finance (MMF) Research Group Conference 2003 52, Money Macro and Finance Research Group.
    3. Juan G Brida & Bibiana Lanzilotta & Lucia I Rosich, 2021. "On the empirical relations between producers expectations and economic growth," Economics Bulletin, AccessEcon, vol. 41(3), pages 1970-1982.
    4. Jan Jacobs & Jan-Egbert Sturm, 2009. "The information content of KOF indicators on Swiss current account data revisions," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2008(2), pages 161-181.
    5. Nilss Olekalns & Kalvinder Shields, 2008. "Nowcasting, Business Cycle Dating and the Interpretation of New Information when Real Time Data are Available," Department of Economics - Working Papers Series 1040, The University of Melbourne.
    6. Anastasiou, Dimitrios, 2020. "Senior bank loan officers' expectations for loan demand: Evidence from the Euro-area," MPRA Paper 98903, University Library of Munich, Germany.
    7. Dimitrios Anastasiou & Stelios Giannoulakis, 2021. "Are firms' expectations on the availability of external finance rational, adaptive or regressive?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 49(5), pages 833-849, June.
    8. Sarah Gelper & Christophe Croux, 2010. "On the Construction of the European Economic Sentiment Indicator," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(1), pages 47-62, February.

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