the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

an evaluation of the forecasts of the federal reserve a pooled approach the federal reserve greenbook forecasts of real gdp inflation and unemployment are analysed for the period 1974 to 1997 we consider whether these forecasts exhibit systematic bias and whether efficient use is made of information that is whether revisions to these forecasts over time are predictable rather than analyse the forecasts separately for each horizon of interest we discuss and implement methods that pool information over horizons we conclude that there is evidence of systematic bias and of forecast smoothing of the inflation forecasts

are investment expectations rational adaptive or regressive i introduction tests of the rational expectations hypothesis reh outside the experimental laboratory typically utilize two types of data quantitative measures of expectations about publicly observed variables such as inflation usually elicited from small samples of professional forecasters and qualitative measures of expectations about privately observed variables such as personal income elicited from large samples of households analyses of both types of data have produced varying levels of support for the reh for example keane and runkle 1990 1998 find evidence in favor of the reh using the first type of data while bonham and cohen 2001 in part overturn their results after accounting for the nature of cross correlations inherent in a group of individuals forecasting the same publicly observed integrated time series next using household survey data das and van soest 1997 1999 and das et al 1999 find evidence against the reh in contrast benitez silva et al 2008 furthered the econometric analysis of such data and presented evidence in favor of the reh in employing publicly available professional forecaster data several concerns related to pooling data revisions and the possibility of signaling on the part of forecasters have been raised 1 further pesaran and weale 2006 review a large and growing literature on survey expectations of households and the attendant econometric and substantive issues in analyzing qualitative response expectations data from such surveys they conclude for myriad reasons that it remains the case that the analysis of individual responses to such surveys and in particular to those who collect only qualitative information is underdeveloped these issues can be addressed in part by data on quantitative expectations about privately observed variables this paper employs data from two new survey sources that provide such information the resulting panel of 775 firms in canada contains quantitative information on expectations about purchases of new machinery and equipment investment as well as realized levels of investment over 7 yr the data are particularly useful because they avoid some of the issues raised for previous studies and their analysis helps to contribute on the firm side to the agenda laid out by manski 2004 who sees a critical need for basic research on expectations formation figure 1 omitted estimation results suggest that investment expectations are not rational if the assumed underlying loss function is assumed to be symmetric that is the usual unbiasedness and efficiency requirements for rational expectations clearly elucidated for instance by lovell 1986 do not hold for the collected data further hypothesis tests on statistical models implied by conventional adaptive expectations do not suggest the prevalence of such behavior in the data however a particular version of such extrapolative expectations namely regressive expectations formation does find support in the data the paper is structured as follows section ii discusses the data on 775 manufacturing plants over 7 yr that was compiled by merging two national surveys in canada in section iii the statistical models and attendant hypothesis tests as implied by various expectations formation assumptions are described followed by their estimation results section v concludes ii the data data were compiled from two confidential proprietary surveys conducted by statistics canada the capital expenditures survey ces and the annual survey of manufactures asm over 7 yr 1986 1992 2 the ces contains data on one step ahead expected expect sub it and realized actualit capital expenditures on machinery and equipment i e investment and the asm on shipments shipment sub sit 3 owing to the lumpy and long term nature of construction expenditures this variable was excluded finally only manufacturing sector records were selected for both surveys

rational bias in yield curve forecasts empirical studies of forecasts often fail to reconcile the rational expectations hypothesis with a minimum mean square error objective function recent studies however have argued that observed b

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

analysts interim earnings forecasts evidence on the forecasting process existing empirical evidence indicates that analyst forecasts of corporate earnings do not meet the strict rationality standards prescribed by econometric tests of the rational expectations hypothesis 1 in this paper we address the question of whether the expectation formation process underlying analyst forecasts is adaptive or whether these forecasts are influenced by noninformational factors such as incentives arising from the market for their forecasts o brien 1988 lin and mcnichols 1993 francis and philbrick 1993 and dugar and nathan 1992 and interaction between judgmental and or statistical forecasting methods bunn and wright 1991 fan 1990 and hoerl and kennard 1970 the rejection of rational expectations gives rise to two views of the forecasting process of analysts the first based on an informational argument is that the forecasting process is adaptive marcet and sargent

on the single resource capacity problem for multi item inventory systems in this paper we study multi item inventory systems under a single resource capacity constraint in contrast to most previous approaches we treat the capacity as a decision variable and not as given data this is consistent with many practical cases where additional capacities resources can be acquired rented at some cost profit two solution procedures are developed for deriving an optimal policy within the class of policies that has a fixed cycle for all items with phasing of orders within the cycle these solution procedures can be applied to various types of cost functions as illustrated by an example

macroeconomic forecasts and microeconomic forecasters in the presence of principal agent problems published macroeconomic forecasts by professional economists may not measure expectations forecasters may use their forecasts in order to manipulate beliefs about their ability i test a cross sectional implication of models of reputation and information revelation i find that as forecasters become older and more established they produce more radical forecasts since these more radical forecasts are in general less accurate ex post forecast accuracy grows significantly worse as forecasters become older and more established these findings are consistent with reputational factors at work in professional macroeconomic forecasts

changing the economics of environmental degradation in madagascar lessons from the national environmental action plan process abstract this paper examines the economic logic and implicit assumptions used to develop and support the national environmental action plan neap process in madagascar the study focuses on three key issues how were the costs of the main environmental problems identified and estimated what underlying factors were identified as causing these problems and how is the neap implementation strategy designed to change these underlying factors the most difficult tasks for neaps will continue to be identifying the key specific underlying factors causing the problem and determining which of these factors are actually feasible for a neap process to change the analysis of the madagascar makes clear that key environmental problems are driven by land use decisions of large numbers of geographically dispersed rural and urban inhabitants these problems are not easy or even feasible targets for specific environmental policy changes if this is the case as it seems to be in madagascar then it is perhaps unrealistic to hope that neaps as constituted can provide a framework for both understanding and alleviating a country s key environmental problems

inflation expectations in latin america this paper tests the rationality of inflation forecasts surveyed in mexico brazil and chile and identifies their recent formation rule there is strong evidence that forecasts are unbiased but forecasters have not been fully efficient in the use of available information the paper assesses the importance of inflation targets to anchor inflation expectations in these countries and finds that in most cases there is room for improvement in credibility

inflation expectations in turkey learning to be rational turkey implemented an ambitious restructuring of the economy in the past several years including the adoption of inflation targeting along with a floating exchange rate regime inflation came down from almost triple digits to single digits between 2001 and 2005 this particular episode of the turkish economy sets a genuine case study for investigating the possible changes in the behaviour of inflation expectations upon a regime shift accordingly this study analyses inflation expectations in turkey focusing especially on the post 2001 transition phase we first conduct classical tests of unbiasedness and efficiency using aggregate survey data between august 2001 and october 2007 to get a statistical benchmark for rationality we find that classical tests reject full rationality hypothesis for all series except next month s consumer price index cpi inflation expectations then we carry out time varying parameter tvp estimates based on a kalman filter to see how the coefficients in the classical tes

a comparison of simple heuristics for multi product dynamic demand lot sizing with limited warehouse capacity abstract the paper analyzes the problem of the replenishment of multiple products to satisfy dynamic demands when the warehouse capacity or the available inventory budget is limited in this context the timing of replenishment lot sizes has to be staggered to account for the capacity conflict and to provide an effective space sharing in addition to the solution of the trade off between setup and inventory holding costs we analyze three simple heuristics first we review a forward algorithm that successively builds lots by extending replenishments according to a cost based priority rule the second heuristic solves the lot sizing problems independently for each product in a first step and then resolves capacity violations by a smoothing mechanism further this paper adapts a heuristic for single item uncapacitated lot sizing that successively improves an initial lot for lot schedule by combining replenishments according to a cost savings based priority rule to the multi item capacitated problem the performance of the three simple methods is compared in an extensive numerical study and benchmarked against the solution of a mixed integer programming approach the results show the different ability of the approaches to simultaneously account for the individual lot sizing problems and the lot staggering problem across multiple products especially the savings approach appears to provide better results for a broad range of problems especially for large tightly capacitated problems with high demand variability

wage expectations in the labor market survey evidence on rationality using a new set of directly observed wage expectations among firms this paper finds that in general firms forecasts fail the unbiasedness and efficiency requirements of weak form rational expectations these market participants consistently underestimate the wages they actually end up paying and their expectations do not efficiently utilize the information in past realizations the mean absolute forecast error of two percent compares with an error of only five percent if static expectations were held the major source of wage fore cast error seems to be errors in predicting demand rather than in predicting supply or the general price level wage forecast errors are positively correlated across fields with distinct supply patterns and are positively correlated with quantity forecast error the properties of stochastically weighted expectations and the effectiveness of the wage and price controls of the early 1970 s are also discussed this abstract was borrowed from another version of this item

inflation forecast errors and time variation in term premia the expectations theory of the term strueture is well known to give wrong signals as to the future course of long term interest rates one explanation involves rational time varying term premia however the anomaly may also be due to inflation forecast errors we study survey forecasts of inflation it seems that the respondents forecasts are insufficiently adaptive interest rates reflect expectations similar to the inflation forecasts as a result past survey forecast errors reliably predict premia on u s government bonds

bettor handicapping and market efficiency in greyhound parimutuel gambling this paper evaluates the speculative efficiency of the parimutuel gambling market for greyhound racing the efficiency tests consider the informational content of bettor handicapping data as well as the forecasts of professional handicappers and the aggregate market previous studies have failed to consider the wide range of performance data that are available for bettor handicapping activities two tests of efficiency are considered the first test evaluates the in sample explanatory power of the handicapper s forecasts and handicapping data relative to the aggregate market s forecasts as indicated by the final odds the second test compares simulated rates of return to hypothetical gambling obtained from ex ante finish forecasts to the efficient rates of return that are dictated by the track s commission significant speculative inefficiencies are revealed the second test suggests the existence of above normal returns to gambling from using conditional forecasts generated from bettor handicapping data

are professional macroeconomic forecasters able to do better than forecasting trends this paper investigates whether survey forecasters are able to make more accurate forecasts than simply supposing that the future values of the variable will move monotonically to the long run expectation we consider the forecasts individually and the consensus forecasts consensus survey forecasts are able to do so to varying degrees depending on the variable but this ability is largely limited to forecasts of the current quarter

single resource multi item inventory systems we consider two economic order quantity models where multiple items use a common resource in the tactical model the objective is to establish and coordinate order quantities to minimize total inventory ordering and carrying costs without ever exceeding a capacity constraint on the resource in the strategic model the objective is to establish and coordinate order quantities to minimize the average cost which includes in addition to the ordering and inventory costs a cost proportional to the peak usage of the resource the common resource may be space in an automated warehouse or total capital invested in inventory we show that a lower bound on the peak resource usage known for certain subsets of policies is valid for any feasible policy we use this to derive lower bounds on the optimum average cost for both models and show that simple heuristics for either model have bounded worst case performance ratios more sophisticated heuristics require an effort to solve the embedded staggering problem of time phasing the arrival of the orders to minimize the maximum use of the resource we develop a heuristic for the staggering problem and use it to obtain efficient heuristics for the strategic and tactical models

multi item replenishment and storage problem mirsp heuristics and bounds automated warehouses are often faced with the problem of smoothing their stock volume over time in order to minimize the cost due to space acquisition in this paper we consider an infinite horizon multi item replenishment problem in addition to the usual setup and holding costs incurred by each item an extra charge proportional to the peak stock volume at the warehouse is due this last cost raises the need for careful coordination while making decisions on the individual item order policies we restrict ourselves to the class of policies that follows a stationary rule for each item separately we derive a lower bound on the optimal average cost over all policies in this class then we investigate the worst case of the rotation cycle policy we show that depending on the problem s parameters the rotation cycle policy may yield an extremely good solution but in other settings this heuristic may generate an extremely poor policy we also develop a new heuristic whose performance is at least as good as that of the rotation cycle procedure and moreover it is guaranteed to come independently of the problem s parameters within no more than 41 of the optimal solution

coordination issues in policy implementation networks an illustration from madagascar s environmental action plan abstract policy implementation brings together multiple agencies and groups to work in concert to achieve a set of objectives making these joint arrangements function effectively depends upon multiactor linkages and coordination drawing upon the interorganizational and policy network literature this article discusses these issues and applies them to national environmental action plans neaps the article looks specifically at madagascar examining the implementation structure of the neap and how coordination problems are manifested the essay concludes with some recommendations directed toward improving the effectiveness of madagascar s neap but which have wider applicability to managing coordination among policy implementation actors in general

nominal interest rates as indicators of inflation expectations forward interest rates have become popular indicators of inflation expectations theusefulness of this indicator depends on the relative volatilty and the correlation of inflation expectations and expected real interest rates this paper studies u s and u k data using a range of different tools and data sets the forward rate rule perfoms reasonably well in spite of significant movements in the expected real interest rate the reason is that the noise that movements in the expected real interest rate add to the inflation expectations is balanced by a tendency for expected real interest rates and inflation expectations to move in opposite directions

the costs of land degradation in sub saharan africa the overriding question that this article addresses is what are the immediate and future costs of land degradation for a nation the objectives of the analysis are to find appropriate measures to express the national level costs of land degradation and suitable methods to estimate such measures furthermore the aim is to document and interpret the results of existing studies to meet these objectives a set of 12 studies from sub saharan africa ssa is reviewed using a consistent cross study analytical framework derived from the objectives above with regard to measures of the cost of land degradation this article identifies ten different dimensions which illustrate the importance of qualifying statements about the costs of land degradation by rigorous clarification of what type of measure has been used furthermore with regard to methods of deriving costs of land degradation this article illustrates a spectrum of approaches one sub group has used a replacement cost approach while a productivity loss approach has been used in the majority of the studies reviewed the latter approach is further sub divided into five different categories ranging from the most informal to the most rigorous it is evident that very few original estimates exist of soil loss yield decline functions in sub saharan africa hence some of the basic work in this area is recycled for use in areas that may exhibit quite different conditions finally with regard to study results there is considerable variance of cost estimates pertaining even to the same country these differences can be explained however and a rational assessment allows a choice of the most appropriate results results across countries are reasonably well clustered in terms of their productivity impact per soil loss unit with local knowledge of soil conditions but in the absence of local yield loss data this provides a useful interval of reasonable assumptions as one would expect the national costs of land degradation vary considerably across countries this sometimes leaves room for considerable investment in soil and water conservation but should not invoke images of a rapidly approaching doomsday

bias in federal reserve inflation forecasts is the federal reserve irrational or just cautious abstract inflation forecasts of the federal reserve seem to have systematically under predicted inflation from the fourth quarter of 1968 until volcker s appointment as chairman and to systematically over predict it afterwards until the second quarter of 1998 furthermore under quadratic loss commercial forecasts seem to have information not contained in those forecasts to investigate the cause of this apparent irrationality this paper recovers the loss function implied by federal reserve s inflation forecasts the results suggest that the cost of having inflation above an implicit time varying target was larger than the cost of having inflation below it for the period since volcker and that the opposite was true for the pre volcker era once these asymmetries are taken into account the federal reserve s inflation forecasts are found to be rational

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

rational bias in macroeconomic forecasts do professional forecasters provide their true unbiased estimates or do they behave strategically in our model forecasters have common information confer actively and thus know the true pdf of future outcomes intensive users of economic forecasts monitor forecasters performance closely occasional users are drawn to the forecaster who fared best in the previous period in the resulting nash equilibrium even though economists have identical expectations they make a range of projections that mimics the true probability distribution of the forecast variable those whose wages depend most on publicity produce forecasts that differ most from the consensus empirical evidence supports the model

modelling the general public s inflation expectations using the michigan survey data in this article we discuss a few models developed to explain the general public s inflation expectations formation and provide some relevant estimation results furthermore we suggest a simple bayesian learning model which could explain the expectations formation process on the individual level when the model is aggregated to the population level it could explain not only the mean values but also the variance of the public s inflation expectations the estimation results of the mean and variance equations seem to be consistent with the results of the questionnaire studies in which the respondents were asked to report their thoughts and opinions about inflation

loss function assumptions in rational expectations tests on financial analysts earnings forecasts abstract prior research concludes that financial analysts do not process public information efficiently in generating their earnings forecasts the ordinary least squares ols regression based tests used in prior studies assume implicitly that analysts face a quadratic loss function in contrast we argue that analysts likely face a linear loss function and hence try to minimize their absolute forecast errors we conduct and compare rational expectations tests using these two alternative loss functions we reproduce most prior findings of forecast inefficiency with ols regressions but find virtually no evidence of forecast inefficiency with least absolute deviation regressions where we explicitly assume a linear loss function

integrated production distribution planning in supply chains an invited review ss selc suk ereng uc s n c simpson asoo j vakharia c a department of decision and information sciences college of business administration university of florida gainesville fl 32611 7169 usa b department of management science and systems school of management university at bu alo bu alo ny 14260 4000 usa c department of decision and information sciences college of business administration university of florida 343 bus p o box 117169 gainesville fl 32611 7169 usa

an analysis of a panel of spanish gdp forecasts this article undertakes an analysis of the forecasts included in the panel of spanish forecasts in order to highlight the fact that the predictions made and the errors committed by the entities participating on this panel contain information that is particularly useful in analysing the evolution of the spanish economy here a study is undertaken of the gdp growth forecasts for the spanish economy for the period 2000 to 2002 made in distinct forecast time horizons specifically it analyses whether the forecasts are optimistic or pessimistic and whether new information concerning the variable being predicted is used efficiently in revising earlier forecasts

inattentive professional forecasters abstract using the ecb survey of professional forecasters to characterize expectations at the micro level we emphasize two new facts forecasters i fail to systematically update their forecasts and ii disagree even when updating it is moreover found that forecasters have predictable forecast errors these facts are qualitatively supportive of recent models of inattention and suggest a setup where agents imperfectly process information due to both sticky information a la mankiw reis and noisy information a la sims however building and estimating such an expectation model we find that it cannot quantitatively replicate the error and disagreement observed in the data

98 effective integer ratio lot sizing for one warehouse multi retailer systems a warehouse supplies n retailers constant external demand occurs at each retailer and shortages are not allowed there are linear holding costs and fixed costs for ordering at the warehouse and at each retailer the goal is to minimize the long run average cost over an infinite time horizon we define a new class of policies for this problem whose simple structure facilitates both computation and implementation the cost of a policy that is optimal within this class is shown to be within 2 of the cost of an optimal policy for the original problem in the worst case such a policy can be computed in on log n time

frequency bias in consumers perceptions of inflation an experimental study we investigate whether the perception of economy wide inflation is affected by the frequency with which various goods prices are observed we provide novel experimental evidence that consumers perceptions of aggregate inflation are systematically biased toward the perceived inflation rates of the frequently purchased items this frequency bias may affect consumers consumption and investment decisions and thus have important macroeconomic consequences it may also explain why consumers typically over estimate inflation in surveys during periods where frequently purchased non durable goods are inflating faster than durables

offsetting inventory replenishment cycles abstract the inventory staggering problem is a multi item inventory problem in which replenishment cycles are scheduled or offset in order to minimize the maximum inventory level over a given planning horizon we incorporate symmetry breaking constraints in a mixed integer programming model to determine optimal and near optimal solutions local search heuristics and evolutionary polishing heuristics are also presented to achieve effective and efficient solutions we examine extensions of the problem that include a continuous time framework as well as the effect of stochastic demand

do professional forecasters trust in taylor type rules evidence from the wall street journal poll this article uses the monthly wall street journal poll between 2002 and 2010 to analyse whether professional economic forecasters believe in and thus apply taylor type rules for their own forecasts using their forecasts for the federal funds rate the inflation rate and capacity utilization we estimate whether these are internally consistent with the message of taylor type rules we find that the expectation formation can indeed be described by taylor type rules

efficiency and formation of expectations evidence from the european investment survey the european commission conducts an annual survey regarding planned and realized business fixed investment across various manufacturing sectors in euroland in this study we investigate the predictive content of survey based expectations on investment in addition we empirically test the rationality of respondents both in a time series as well as in a panel context according to our results based on pooling the data efficiency is rejected since expectations are biased predictors of actual outcomes furthermore expectations revisions are found to be correlated with components of the information set known at the time of decision making finally our results qualify regressive expectations as the mechanism that more adequately describes the formation of expectations

vested interest and biased price estimates evidence from an auction market this study employs a new data set from art auctions to examine the relationship between auctioneer presale price estimates and the long term performance of artworks we find that the price estimates for expensive paintings have a consistent upward bias over a long period of 30 years high estimates at the time of purchase are associated with adverse subsequent abnormal returns moreover the estimation error for individual paintings tends to persist over time these results are consistent with the view that auction house price estimates are affected by agency problems and that

biases in macroeconomic forecasts irrationality or asymmetric loss empirical studies using survey data on expectations have frequently observed that forecasts are biased and have concluded that agents are not rational we establish that existing rationality tests are not robust to even small deviations from symmetric loss and hence have little ability to tell whether the forecaster is irrational or the loss function is asymmetric we quantify the exact trade off between forecast inefficiency and asymmetric loss leading to identical outcomes of standard rationality tests and explore new and more general methods for testing forecast rationality jointly with flexible families of loss functions that embed quadratic loss as a special case an empirical application to survey data on forecasts of nominal output growth demonstrates the empirical significance of our results and finds that rejections of rationality may largely have been driven by the assumption of symmetric loss

between economic loss and social identity the multi dimensional cost of avoiding deforestation in eastern madagascar this paper exhibits the multiple dimensions of the cost of stopping the main driver of deforestation in madagascar slash and burn agriculture tavy as well as being a major component of the economic livelihoods of most local households living at the edge of forests tavy has been described by anthropologists as an important cultural practice in this paper we show that stopping tavy does not only entail an economic cost for local households the loss of the cultural dimension of tavy would come at an additional cultural cost for some our results suggest that a viable cessation of deforestation in madagascar would require going beyond simple compensation of the opportunity costs of avoiding deforestation

testing the rationality of price forecasts new evidence from panel data this paper tests the rationality of individual price forecasts in a panel of professional forecasters here unlike in most previous studies rationality is not rejected the results here differ because 1 using individual forecasts avoids aggregation bias 2 comparison of forecasts to initial data avoids bias due to data revision 3 the professional forecasters have economic incentives to state their expectations accurately and 4 a new covariance matrix estimator consistent when forecast errors are correlated across individuals is used copyright 1990 by american economic association

imperfect information and wage inertia in the business cycle a comment in a recent article gertler 1982 presents a model that explains certain stylized facts concerning the relative behavior of the money supply and nominal wages one additional feature of the model is the behavior of real output which is found to have a serially correlated response to a money supply shock this serial correlation appears to arise from an information structure that precludes agents from directly disentangling permanent versus transitory movements in relevant state variables this information structure complicates the forecasting problem that must be solved to analyze the model and affects the behavior of wages and the variance of output it will not however lead to serial correlation in real output an algebraic error is responsible for the serial correlation found by gertler this note corrects the error and presents an alternative solution to the forecasting problem gertler constructs forecasts of the relevant state variable through the use of a kalman filter while this technique is appropriate for the problem a simpler solution is available this solution is based on an equivalent representation of the stochastic process generating the disturbances of the model this equivalent representation can then be used in a straightforward way to describe wage dynamics and the variance of real output it is sufficient to analyze gertler s model in the case where there are only monetary disturbances the relevant equations are

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

expectations and the effects of monetary policy this paper examines the predictive power of shifts in monetary policy as measured by changes in the real federal funds rate for output inflation and survey expectations of these variables we find that policy shifts have larger effects on actual output than on expected output thus policy predicts errors in output expectations a violation of rational expectations policy shifts do not predict errors in inflation expectations we explain these results with a model in which agents systematically underestimate the effects of policy on aggregate demand this model helps to explain the real effects of policy

kram a sector model of danish agriculture background and framework development this paper outlines a new spatial nonlinear programming model of the agricultural sector in denmark the kram model kvl s rationalized agricultural model optimizes production functions on a very disaggregated level allowing for analysis of changes in physical constraints to production as well as price changes the model is dynamic with a time horizon of 10 years the structural development is determined endogenously using profits and a markov chain model the purpose of this paper is to place kram in a theoretical framework future work will address the programming calibration and application of kram

forecast uncertainty ex ante and ex post u s inflation and output growth survey respondents who make point predictions and histogram forecasts of macro variables reveal both how uncertain they believe the future to be ex ante as well as their ex post performance macroeconomic forecasters tend to be overconfident at horizons of a year or more but overestimate i e are underconfident regarding the uncertainty surrounding their predictions at short horizons ex ante uncertainty remains at a high level compared to the ex post measure as the forecast horizon shortens there is little evidence of a link between individuals ex post forecast accuracy and their ex ante subjective assessments

forecasting dynamics and convergence to market fundamentals evidence from experimental asset markets abstract subjects trade shares of a fictitious asset in a computerized double auction market and submit one period ahead forecasts of the mean contract price on average the predictions of the rational expectations hypothesis are not supported and forecasts tend to be both biased and inconsistent with the specification of the process which would generate prices in a rational expectations equilibrium nevertheless an empirical analysis of agents forecasting dynamics indicates that learning does occur and that agents forecasts evolve in a direction consistent with a rational expectations equilibrium

on the rationality of us macroeconomic forecasts evidence from a panel of professional forecasters asa nber survey data is used to check the rationality of us macroeconomic forecasts it is found that of 75 forecast series examined 51 are biased 25 are both unbiased and efficient and only two pass the null hypothesis of orthogonality this calls into question the validity of rational expectations hypothesis

testing the rationality of price forecasts reply carl bonham and richard cohen 1995 are quite correct in noting the errors in our paper keane and runkle 1990 which were caused by our ignorance of cointegration we stand chagrined however bonham and cohen are overstating their case when they claim that keane and runkle s results do not support the empirical validity of the rational expectations hypothesis p 289 bonham and cohen focus on our tests of price forecast rationality conditioned on past oil prices and ml which they claim are the core of our paper and provide our most stringent tests of rationality those particular tests account for only two paragraphs of our 20 page paper obviously these tests do not provide the core results of our paper rather the main result of our paper is that individual price forecasts are unbiased and rational conditioned on the forecaster s own past errors no previous researchers had ever found even this limited support for the rational expectations hypothesis these core results are unaffected by the cointegration issues noted by bonham and cohen given that caveat however note how few of our results are actually overturned by bonham and cohen although our test statistics for determining whether forecasters properly condition on ml growth are incorrect bonham and cohen reach the same conclusion that we do price forecasts conditioned on ml growth are rational bonham and cohen do reach different conclusions about forecast rationality than we do when they condition on oil price changes but they themselves show that forecasters were only irrational in conditioning on oil prices after 1973 their table 2 rows 5 and 6 to call such forecasting failure irrationality may or may not be correct we think that bonham and cohen s results merely confirm the widespread view that forecasters did not completely understand the effects that oil price shocks would have on the economy because such large oil price shocks had never been seen before although bonham and cohen overturn only one of our original tests they do provide additional evidence against forecast rationality with their tests that condition on interest rate spreads and the unemployment rate we have no doubt that a search over a large number of conditioning variables will uncover some instances in which forecast rationality is rejected but conducting such a search will also incorrectly bias tests toward rejecting rationality since our original paper we have also examined the rationality of earnings forecasts made by individual stock analysts a group that has even more incentive than economic forecasters to make accurate predictions although all previous studies in that literature had found individual earnings forecasts to be irrational we found keane and runkle 1994 that analysts forecasts are rational this additional research provides further support for the paper criticized by bonham and cohen

firm performance and macro forecast accuracy abstract combining a unique survey of japanese firms gdp forecasts with accounting data for 25 years we find three main results first firms gdp forecasts are associated with their employment investment and output growth in the subsequent year second over optimistic and pessimistic forecast errors predict lower profitability and productivity consistent with our model of input choice under uncertainty third larger and more cyclical firms make forecasts closer to professionals presumably reflecting their higher return to accuracy forecasts by more productive and older firms are also more similar to professional forecasts implying forecasting ability is linked to management ability and experience

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

political control and public sector savings evidence from the states the right to access and ultimately spend public sector savings is determined by the party which can control the politicaloutcome this implies that anticipatedfuture changes in the state s controllingpolitical party may systematicallyadversely affect current savings extendingthe life cycle permanent income model ishow that a representative legislator willopt to forgo current saving in favor ofspending when his prospects for futurepolitical control diminish estimating apanel data model of 39 states from1973 1995 i find that an actual futurechange in the controlling party of astate s lower house significantly reducescurrent saving

asymmetry complementarities and state dependence in federal reserve forecasts forecasts are a central component of policymaking the federal reserve s forecasts are published in a document called the greenbook previous studies of the greenbook s inflation forecasts have found them to be rationalizable but asymmetric if considering particular subperiods for example before and after the volcker appointment in these papers forecasts are analyzed in isolation assuming policymakers value them independently we analyze the greenbook forecasts in a framework in which the forecast errors for different variables are allowed to interact we find that allowing the losses to interact makes the unemployment forecasts virtually symmetric the output forecasts symmetric prior to the volcker appointment and the inflation forecasts symmetric after the onset of the great moderation

the structure of expectations of the weekly money supply announcement abstract this paper examines the structure of expectations of the weekly money supply announcement in the late 1970s the data used are from a weekly telephone survey of money market participants the rationality and structure of expectations are explored with the data organized in three ways the mean response to each weekly survey the pooled sample of individual responses and time series of responses by each individual in the survey the effect of data aggregation on rationality tests is investigated the structure of the expectations data are also examined and it is found that both strong regressive influences and adaptive learning characterize the data

is bank supervision central to central banking whether central banks should play an active role in bank supervision and regulation is being debated both in the united states and abroad while the bank of england has recently been stripped of its supervisory responsibilities and several proposals in the united states have advocated removing bank supervision from the federal reserve system other countries are considering enhancing central bank involvement in this area many of the arguments for and against these proposals hinge on the effect this change would have on the ability of the central bank to conduct monetary policy we find that confidential supervisory information on bank ratings significantly improves

offsetting inventory replenishment cycles to minimize storage space abstract in a recent paper murthy n n benton w c rubin p a 2003 offsetting inventory cycles of items sharing storage european journal of operational research 150 304 319 discussed the problem of offsetting inventory replenishment cycles of several items in order to minimize the maximum required storage space they analyzed the case where replenishment cycles are given integer multiples of a basic period and proposed a heuristic to solve the problem while they provided a good analysis of the considered problem the proposed heuristic produces less interesting results in the following a simpler more efficient and easier to implement heuristic is proposed numerical results are provided to prove its superiority

the rationality of usda forecasts under multivariate asymmetric loss a large number of previous studies suggest that many usda forecasts are biased and or inefficient these findings however may be the result of the assumed loss function of usda forecasters we test the rationality of the usda net cash income forecasts and the wasde production and price forecasts between 1988 and 2018 using a flexible multivariate loss function that allows for asymmetric loss and non separable forecast errors our results provide robust evidence that usda forecasters are rational expected loss minimizers yet demonstrate a tendency to place a greater weight on under or overprediction as a result this study provides an alternate interpretation of previous findings of forecast irrationality

property rights genetic resources and biotechnological change it is well recognized that wild genetic resources the genetic constitutions of plants and animals have substantial social and economic value as repositories of genetic information today genetic information provides direct and indirect inputs into plant breeding programs the development of natural products including drugs and pharmaceuticals and increasingly sophisticated applications of biotechnology 2 recognition of the potential of wild genetic resources in the development of drugs has led the national cancer institute to initiate a massive plant collection project 3 which is a follow up to an earlier 1970s project that sought to identify drugs effective against a variety of cancers and to look at the immune system effects of various drugs it is estimated that 70 percent of the 3 000 species known to have anticancer properties are found in the tropical forests 4 in recent years a number of widely used drugs have been developed from plants including two important anticancer drugs derived from the rosy periwinkle found in tropical madagascar with the recent major breakthroughs in biotechnology the future potential of these resources seems limitless species that have no current commercial application have useful natural chemicals or are as yet undiscovered never

spillovers from high value agriculture for exports on land use in developing countries evidence from madagascar high value agriculture for exports is increasingly important in developing countries in a case study of contract farming for exports of vegetables from madagascar strong spillover effects of these trade opportunities on land use are found to exist using a matched plot sampling design the productivity of rice the main domestically consumed staple is shown to be two thirds higher on fields that were contracted during the off season for the production of vegetables this increase in yields is linked to an increase of soil fertility due to the application of fertilizer and compost which farmers did not use prior to the contracts although agricultural output goes up significantly labor productivity stays the same suggesting that there is greater labor absorption on existing land and the diffusion of this type of technology at a larger scale throughout madagascar would be expected to substantially decrease incentives to deforest by increasing wages and to boost productivity of existing lands relative to newly deforested ones

perceived inflation persistence this article constructs and estimates a measure called perceived inflation persistence that can be used to determine if professional forecasters inflation forecasts indicate there has been a change in inflation persistence this measure is built via the implied autocorrelation function that follows from the estimates obtained using a forecaster specific state space model findings indicate that u s perceived inflation persistence has changed since the mid 1990s with more consensus among forecasters at lower levels of persistence when compared to the autocorrelation function for actual inflation forecasters typically react less to shocks to inflation than the actual inflation data would suggest

what do economists know an empirical study of experts expectations for more than three decades economic columnist joseph a livingston has canvassed a panel of economists twice a year eliciting their six month and twelve month forecasts for more than a dozen key variables this study analyzes whether the experts predictions are unbiased and whether complete use was made of all relevant known information unbiasedness and completeness being necessary conditions for fully rational expectations little bias was found in either the half year or full year predictions but extensive underutilization of information particularly data on monetary growth occurred to prophecy is extremely difficult especially with respect to the future chinese proverb do economists expectations regarding key price and nonprice variables utilize all known relevant information in an unbiased efficient manner this is a worthy subject for research for several reasons properties of experts predictions likely form an upper bound for those of laymen further as john muth 14 has noted the character of dynamic processes is typically very sensitive to the way expectations are influenced by the actual course of events p 316 hence we need to know precisely how events do affect expectations finally the common practice of replacing a variable s generally unobserved expectation with a proxy based on its past values will be unbiased and will not cause bias in other

tests of the rational expectations hypothesis this paper reviews evidence on the structure of anticipation from a number of empirical studies jack muth s rational expectations hypothesis is compared with a variety of alternative models including ferber s law the implicit expectations model of edwin mills and muth s new errors in the variables model the cumulative evidence is of such strength as to compel the suspension of belief in the concept of rational expectations this implies that it is a mistake to proceed under the maintained hypothesis that expectations are rational instead it is necessary to test the sensitivity of empirical and theoretical results to alternative assumptions about the structure by which anticipations are generated copyright 1986 by american economic association

personal experiences and expectations about aggregate outcomes using novel survey data we document that individuals extrapolate from recent personal experiences when forming expectations about aggregate economic outcomes recent locally experienced house price movements affect expectations about future u s house price changes and higher experienced house price volatility causes respondents to report a wider distribution over expected u s house price movements when we exploit within individual variation in employment status we find that individuals who personally experience unemployment become more pessimistic about future nationwide unemployment the extent of extrapolation is unrelated to how informative personal experiences are is inconsistent with risk adjustment and is more pronounced for less sophisticated individuals

semiparametric distribution free testing of the expectations hypothesis in a parimutuel gambling market the expectations hypothesis maintains that a current forward or futures price should be an unbiased forecast of the expected future price this article tests the expectations hypothesis in the parimutuel gambling market for greyhound racing using parametric and semiparametric estimators parimutuel gambling markets are similar to speculative asset markets in many regards conventional maximum likelihood tests of asset pricing require a priori specification of the statistical distribution governing agents expectations distributional misspecifications may bias conventional tests the semiparametric estimators applied in this article overcome these problems and in addition maintain consistency under heteroscedasticity the results reject the expectations hypothesis

the stork the plow rural social structure and tropical deforestation in poor countries abstract several authoritative sources attribute deforestation in poor countries to the actions of the rural poor others argue that this is tantamount to blaming the victim and directing attention away from the fundamental causes inequality in landholding tenure insecurity and landlessness of deforestation unfortunately there are no statistical tests of the impact of these rural political economy variables on deforestation this paper uses a model of deforestation based on rural household labor allocation decisions to empirically assess how those decisions interact with the structure of rural political economy to determine the extent of deforestation in poor countries cross country multiple regression equations suggest that policies to intensify smallholder agriculture can slow population movement to the agricultural frontier but regression results also show that this outcome depends on the degree of equality in the distribution of landholdings and the extent of rural rootlessness these findings have two important implications for public policy first they suggest that efforts to slow deforestation must start with an understanding of the behavior of the millions of small farmers who now deforest second they suggest that political economy interpretations of deforestation need to taken more seriously by those trying to conserve forested areas