News and households' subjective macroeconomic expectations

The purpose of the present paper is to provide microfoundations of how households form subjective expectations of the macroeconomy. We focus on the role of perceived news; distinguishing between good and bad news. The paper introduces a testable model where households give unequal importance (or weights) to 'good' and 'bad' news. The model is empirically verified using household survey data compiled for the US. The results indicate clearly that households give no weight to bad news in the long-run.