Expectations, unreasonable (unreasonable expectations)

Striking economic movements and strong fluctuations in asset prices often result from companies receiving imperfect signals about the future economic situation. This can lead to excessive optimism, in the course of which high investments are made with a view to expected profits; asset prices rise as a result. If expectations are not fulfilled, this leads to a substantial decline in investment activity and a fall in asset prices. – In any case, the central bank should therefore maintain its medium-term orientation and not respond immediately to the ups and downs. – See utilization rate, code words, forward guidance, guidance, verbal, business cycle diagnosis, crisis foreshadow, order capacity index, open mouth policy, output gap, turnaround, confidence indicator, two-pillar principle. – Cf. ECB Monthly Bulletin, May 2009, pp. 93 ff. (detailed presentation; references), ECB Annual Report 2011, pp. 29 ff. (early warning indicators in asset prices).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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