Replacing rational expectations with survey data improves the performance of macroeconomic models, according to a working paper published by the Federal Reserve Bank of Boston on December 28.

The paper's author, Jeff Fuhrer, says real expectations sourced from economic surveys – on inflation, unemployment and short-term interest rates – benefit dynamic stochastic general equilibrium (DSGE) models "along a variety of dimensions".

Importantly, it eliminates the need to include ad hoc features such