The Fed on the business cycle

from today's FRBSF Economic Letter (Nov 22, 2010)

Confidence and the Business Cycle
By Sylvain Leduc

"The idea that business cycle fluctuations may stem partly from changes in consumer and business confidence is controversial. One way to test the idea is to use professional economic forecasts to measure confidence at specific points in time and correlate the results with future economic activity. Such an analysis suggests that changes in expectations regarding future economic performance are important drivers of economic fluctuations. Moreover, periods of heightened optimism are followed by a tightening of monetary policy." ...

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