PhD defence: The roles of uncertainty and beliefs in the economy


On Friday 2 December at 14.15 hrs. Thomas Gomez will defend his PhD thesis The roles of uncertainty and beliefs in the economy.

In his dissertation, Thomas Gomez examines the roles of uncertainty and beliefs in the economy. Specifically, he studies their role in financial markets, monetary policy, and various macroeconomic outcomes like inflation, economic growth, interest rates, and housing. He investigates whether macroeconomic uncertainty affects monetary-policy decisions in the US. He creates a measure of macroeconomic uncertainty as felt by the policymakers and analyses its impact on their interest rate decisions. It appears that policymakers set a significantly lower interest rate in times of higher macroeconomic uncertainty.

Gomez also investigates the role of risk in belief-formation: the process of forming expectations or forecasts. He uses a model in which economic agents (consumers, companies, policymakers, and in this particular study, investors in a simple financial market) choose between simple forecasting rules to form beliefs. They base their choice on the accuracy of those rules’ forecasts in the past and the variability (risk) of that accuracy. Agents have different risk preferences, and therefore choose different rules. Gomez analyses the implications of this belief-formation model in a simple financial market, and shows that the interactions between different beliefs can drive unpredictable booms and busts, like those seen in stock markets and housing markets.

Sentiment is multidimensional

The role of sentiment in the macroeconomy is also investigated by Gomez. He uses 50 years of survey data on the expectations of professional economic forecasters. He measures sentiment as the difference between observed (survey) forecasts and forecasts based on a non-judgemental, a-theoretical model fitted to the data available at the time. He measures sentiments for a large number of economic variables, including inflation, economic growth, interest rates, and housing. These sentiments change over time, and it is not possible to summarise their dynamics with one number (dimension).

He concludes that sentiment is multidimensional, where every dimension has a distinct macro-economic impact. Each dimension affects the economy in a different way. For example, one of the dimensions has an impact on the interest rate while another affects economic growth.

Furthermore, the results from Gomez’ research indicate that the survey forecasts are not always rational, as they are not compatible with the data over the 50-year period that he studies.

Thomas Gomez is Quantitative Analyst at Mathrix Netherlands and a PhD student at the Utrecht University School of Economics (U.S.E.).

Start date and time
End date and time
University Hall, Domplein 29, Utrecht and online
PhD candidate
T. Gomez
The roles of uncertainty and beliefs in the economy
PhD supervisor(s)
Prof. G.U. Weitzel (Radboud University)
Prof. J.E. Frank
Dr. G. Piccillo
Dr. S. Lugo
More information
Full text via Utrecht University Repository