do macroforecasters herd we show that typical tests of whether forecasters herd will falsely indicate herding behaviour for a variety of types of behaviour and forecasting environments that give rise to disagreement amongst forecasters we establish that forecasters will appear to herd if di erences between them reject noise as opposed to private information or if they arise from informational rigidities noise can have a behavioural interpretation and if so will depend on the behavioural model under consideration an application of the herding tests to us quarterly survey forecasts of inflation and output growth data 1981 2013 does not support herding behaviour

habits costly investment and current account dynamics abstract we analyze the current account dynamics for a small country model with habit forming consumers and costly investment the model has several empirical and policy implications i it is consistent with stylized facts regarding the effects of productivity shocks and increases in fiscal spending and regarding the savings investment co movement ii the long run effect of a temporary shock on net foreign assets is often opposite to that of a permanent shock iii under strong habit persistence the welfare dynamics are sluggish so that a beneficial tax financed fiscal policy may have a harmful hangover effect on welfare

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

asymmetric loss and herding behaviour of exchange rate forecasters evidence from south africa this study examines the asymmetry of the loss function for private forecasters in exchange rate forecasts of the south african rand it tests rationality under the possibility of an asymmetric loss function the results indicate less evidence of asymmetry for a horizon of 1 month but considerable evidence of asymmetry for a horizon of 3 months however the shapes of the distributions formed by estimated asymmetry parameters of sub samples for each forecaster are symmetric regardless of the forecast horizons which implies that these forecasters do not herd or antiherd in fact the results of our empirical herding test show that forecasters neither herd nor antiherd which is in sharp contrast to recent findings on antiherding for foreign exchange rates in emerging market economies our findings provide consistent evidence for a recent suggestion that antiherding might result in the rejection of rationality even under asymmetric loss functions our findings also suggest that central bank transparency m

differential interpretation in the survey of professional forecasters in this paper i estimate a simple bayesian learning model to expectations data from the survey of professional forecasters i reformulate the model in terms of forecast revisions which allows one to abstract from differences in priors and to focus the analysis on the relationship between news and revisions the empirical analysis shows that there is significant heterogeneity in the interpretation of news among forecasters in particular at longer horizons while it decreases closer to the forecast target date the results also indicate a positive relationship between prior sentiment and interpretation of the signal in the sense that relatively optimistic pessimistic forecasters are likely to believe that the signal under over estimates the future realization and assign it a low high weight in the forecast revision

biased predictors rationality and the evaluation of forecasts abstract optimal rational forecasts are often biased and thus the empirical finding that actual forecasts are biased is not necessarily evidence of irrational behavior using an asymmetric loss function and a regression forecasting problem these points are explicitly demonstrated

forecasting efficiency concepts and applications this article introduces the concept of forecast efficiency in which the forecast contains all information available at the time of the forecast empirical tests investigate weak efficiency where the information set is all past forecasts and where all forecast revisions and errors should be uncorrelated with past forecast revisions tests of macroeconomic energy consumption and oil price forecasts find a significant autocorrelation of forecast revisions with fifty of fifty one tests showing positive correlation of forecast revisions as opposed to zero correlation consistent with forecast efficiency copyright 1987 by mit press

information rigidity and the expectations formation process a simple framework and new facts we propose a new approach to test the full information rational expectations hypothesis which can identify whether rejections of the null arise from irrationality or limited information this approach quantifies the economic significance of departures from the null by quantifying the underlying degree of information rigidity applying this approach to u s and international data of professional forecasters and other agents yields pervasive evidence consistent with models of imperfect information furthermore the proposed approach sheds new light on policies such as inflation targeting and those leading to the great moderation affecting expectations finally we document evidence of state dependence in the expectations formation process

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

time preference and life cycle consumption with endogenous survival we provide a structural theory of time preference and derive a functional form of intertemporal preferences by postulating that individuals make their life cycle consumption choices as if to maximize expected lifetime this yields a nontime separable expected utility representation where the inverse of the coefficient of intertemporal substitution exceeds the coefficient of relative risk aversion the rate of time preference depends on the inverse of expected remaining lifetime and the effect of age on the productivity of consumption in affecting health the preference formulation is applied in a standard intertemporal consumption model to illustrate the implied life cycle consumption choices

disagreement and biases in inflation expectations empirical work documents substantial disagreement in inflation expectations obtained from survey data furthermore the extent of such disagreement varies systematically over time in a way that reflects the level and variance of current inflation this paper oers a simple explanation for these facts based on asymmetries in the forecasters costs of over and under predicting inflation our model implies biased forecasts with positive serial correlation in forecast errors and a cross sectional dispersion that rises with the level and the variance of the inflation rate it also implies that forecast errors at dierent horizons can be predicted through the spread between the short and long term variance of inflation we find empirically that these patterns are present in inflation forecasts from the survey of professional forecasters a constant bias component not explained by asymmetric loss and rational expectations is required to explain the shift in the sign of the bias observed for a substantial portion of forecasters around 1982

a theory of infrastructure led development abstract this paper proposes a theory of long run development based on public infrastructure as the engine of growth the government in addition to investing in infrastructure spends on health services which in turn raise labor productivity and lower the rate of time preference infrastructure affects the production of both commodities and health services as a result of network effects the degree of efficiency of infrastructure is nonlinearly related to the stock of public capital itself provided that governance is adequate enough to ensure a sufficient degree of efficiency of public investment an increase in the share of spending on infrastructure financed by a cut in unproductive expenditure or foreign grants may facilitate the shift from a low growth equilibrium characterized by low productivity and low savings to a high growth steady state

why do forecasters disagree lessons from the term structure of cross sectional dispersion abstract key sources of disagreement among economic forecasters are identified by using data on cross sectional dispersion in forecasters long and short run predictions of macroeconomic variables dispersion among forecasters is highest at long horizons where private information is of limited value and lower at short forecast horizons moreover differences in views persist through time such differences in opinion cannot be explained by differences in information sets our results indicate they stem from heterogeneity in priors or models differences in opinion move countercyclically with heterogeneity being strongest during recessions where forecasters appear to place greater weight on their prior beliefs

herd behavior of japanese economists abstract this paper analyzes herding by japanese macroeconomic forecasters we find that japanese forecasters herd together regardless of their age in comparison lamont 1995 finds that older american forecasters stop herding

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

new evidence of anti herding of oil price forecasters abstract we used the oil price forecasts of the survey of professional forecasters published by the european central bank to analyze whether oil price forecasters herd or anti herd oil price forecasts are consistent with herding anti herding of forecasters if forecasts are biased towards away from the consensus forecast based on a new empirical test developed by bernhardt et al j financ econ 80 657 675 2006 we found strong evidence of anti herding among oil price forecasters

forecasting stock prices do forecasters herd abstract we use the livingston survey data to study whether forecasters of the s p 500 stock price index herd our results imply that forecasters do not herd rather we find that forecasters anti herd anti herding is less prevalent among academics and federal reserve economists forecaster anti herding is inversely correlated with forecast accuracy forecaster anti herding is not correlated with age

what can survey forecasts tell us about information rigidities a lot we derive common and conflicting predictions from models in which agents face information constraints and then assess their validity using surveys of consumers firms central bankers and professional forecasters we document that mean forecasts fail to completely adjust on impact to shocks leading to statistically and economically significant deviations from the null of full information the dynamics of forecast errors after shocks are consistent with the predictions of models with information rigidities the conditional responses of forecast errors and disagreement among agents can also be used to differentiate between some of the most prominent models of information rigidities

optimal growth with decreasing marginal impatience abstract this paper analyses the long run dynamics of a continuous time infinite horizon optimal growth model with identical households where the households rate of time preference is endogenously determined however unlike the existing literature we assume that households have decreasing marginal impatience i e the instantaneous discount rate is negatively related to the current consumption with this assumption we analyse the stability and uniqueness of the long run equilibrium we show that contrary to the general belief a negative relationship between the instantaneous discount rate and the household s current consumption does not necessarily result in instability of the dynamic system however even a stable system may be characterized by multiple equilibria so that the initial condition becomes important in determining the long run behaviour of the economy we derive a set of sufficient conditions for stability and uniqueness in this context

habits and time preference this paper proposes a utility function incorporating both habit formation and an endogenous rate of time preference in a manner consistent with the intuition of irving fisher regarding the influence of past consumption on impatience it is shown that the ne w specification is tractable and generates new predictions in the cont ext of three model economies 1 a closed economy with heterogeneous agents 2 a small open economy with one traded good and one nontra ded good and 3 a small open economy with a traded good and domestic money copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

differential interpretation of information in inflation forecasts we test the hypothesis associated with a standard assumption in the theoretical literature on learning that economic agents interpret information identically we use a data set based on a survey o

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

rationality and the role of judgement in macroeconomic forecasting this paper examines the effects of judgemental adjustments on the rationality of macroeconomic forecasts published forecasts based on large scale models are rarely purely model based but often include extensive adjustments forecasters adjustments tend to improve forecast accuracy but there is no evidence of their impact on the rationality of forecasts using series of revisions to forecasts we find little evidence that published forecasts are excessively smooth in the nordhaus i 987 sense but intercept corrections do appear to reduce the variation over time in purely modelbased forecasts and to alter the underlying output inflation trade off implicit in the model there is a large literature on the rationality of forecasts and on the efficient use of information in forecasting equally it is now generally recognised that published forecasts are rarely based on the estimated model alone but that adjustments are often made to the model based predictions in arriving at a final forecast thus published forecasts reflect in varying degree the properties of the model and the skills of the model s proprietors while forecasters adjustments do appear to improve forecast accuracy see the work of the esrc

the strategy of professional forecasting we develop and compare two theories of professional forecasters strategic behavior the first theory reputational cheap talk posits that forecasters endeavor to convince the market that they are well informed the market evaluates their forecasting talent on the basis of the forecasts and the realized state if the market expects forecasters to report their posterior expectations honestly then forecasts are shaded toward the prior mean with correct market expectations equilibrium forecasts are imprecise but not shaded the second theory posits that forecasters compete in a forecasting contest with pre specified rules in a winner take all contest equilibrium forecasts are excessively differentiated

economic order quantity models for ameliorating deteriorating items under inflation and time discounting the items that incur a gradual loss in quality or quantity over time while in inventory are usually called deteriorating items in reality there are some items whose value or utility or quantity increase with time and those items can be termed as ameliorating items in this paper an effort has been made to incorporate these two opposite physical characteristics of stored items into inventory model we develop models for ameliorating deteriorating items with time varying demand pattern over a finite planning horizon taking into account the effects of inflation and time value of money optimal solutions of the proposed models are derived and the effects of amelioration deterioration on the inventory replenishment policies are studied with the help of numerical examples

taking the pulse of the economy measuring gdp national income and product accounts best known by one of their principle aggregates gross domestic product gdp are produced by virtually every nation in the world simon kuznets and richard stone both later to become nobel prize winners led the creation of the national accounts for the united states and the united kingdom respectively so what exactly does gdp measure how is it constructed why do the gdp and other national accounts estimates sometimes present a different picture of the economy than other economic indicators this article is intended to help answer these questions by providing a broad overview of the measurement techniques used in estimating gdp and the national accounts in the united states in the united states the gdp and the national accounts estimates are fundamentally based on detailed economic census data and other information that is available only once every five years the challenge lies in developing a framework and methods that take these economic census data and combine them using a mosaic of monthly quarterly and annual economic indicators to produce quarterly and annual gdp estimates for example one problem is that the other economic indicators that are used to extrapolate gdp in between the five year economic census data such as retail sales housing starts and manufacturers shipments of capital goods are often collected for purposes other than estimating gdp and

a closer look at the behavior of uncertainty and disagreement micro evidence from the euro area this paper examines point and density forecasts of real gdp growth inflation and unemployment from the european central bank s survey of professional forecasters we present individual uncertainty measures and introduce individual point and density based measures of disagreement the data indicate substantial heterogeneity and persistence in respondents uncertainty and disagreement with uncertainty associated with prominent respondent effects and disagreement associated with prominent time effects we also examine the co movement between uncertainty and disagreement and find an economically insignificant relationship that is robust to changes in the volatility of the forecasting environment this provides further evidence that disagreement is not a reliable proxy for uncertainty

on the existence of balanced growth equilibrium the authors characterize the class of dynamic models that allow for the most commonly used types of sustained economic growth balanced and asymptotically balanced they show that under a constant returns to scale technology asymptotically constant discount rate and asymptotically constant elasticity of marginal felicity are not only necessary but also sufficient conditions for the existence of a n asymptotically balanced growth equilibrium path the authors provide examples of recursive utility models that accept a n asymptotically balanced growth equilibrium and discuss their implications on cross country differences in growth rates as well as on savings behavior and wealth distribution copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

government spending and capital accumulation with endogenous time preference this paper extends s djajic 1987 to allow for an endogenous rate of time preference and reexamines djajic s experiment how the optimal rates of private consumption and capital accumulation will respond to an unanticipated temporary expansion in government spending the key factors determining the adjustment patterns are the difference between the marginal utility of private consumption and that of public spending the timing of policy reversion and the relationship between private and public consumption in household utility if private and public consumption are edgeworth independent whether investment increases with the length of fiscal expansion depends on whether the marginal utility of private consumption exceeds that of public consumption

estimation and testing of forecast rationality under flexible loss in situations where a sequence of forecasts is observed a common strategy is to examine rationality conditional on a given loss function we examine this from a different perspective supposing that we have a family of loss functions indexed by unknown shape parameters then given the forecasts can we back out the loss function parameters consistent with the forecasts being rational even when we do not observe the underlying forecasting model we establish identification of the parameters of a general class of loss functions that nest popular loss functions as special cases and provide estimation methods and asymptotic distributional results for these parameters this allows us to construct new tests of forecast rationality that allow for asymmetric loss the methods are applied in an empirical analysis of imf and oecd forecasts of budget deficits for the g7 countries we find that allowing for asymmetric loss can significantly change the outcome of empirical tests of forecast rationality