Rational bias in macroeconomic forecasts
By: David Laster, Paul Bennett, and In Sun Geoum.
Contributors: Bennett, Paul.; Geoum, In Sun.; Federal Reserve Bank of New York.
Series: Staff reports ;; no. 21; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 21.
Publisher: Federal Reserve Bank of New York
Published: 1997
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Economic forecasting -- Mathematical models.
Description: "This paper develops a model of macroeconomic forecasting in which the wages firms pay their forecasters are a function of their accuracy as well as the publicity they generate for their employers by being correct.  In the resulting Nash equilibrium, forecasters with identical models, information, and incentives nevertheless produce a variety of predictions in order to maximize their expected wages.  In the case of heterogeneous incentives, the forecasters whose wages are most closely tied to publicity, as opposed to accuracy, produce the forecasts that deviate most from the consensus.  We find empirical support for our model using a twenty-year panel of real GNP/GDP forecast data from the survey Blue Chip Economic Indicators.  Although the consensus outperforms virtually every forecaster, many forecasters choose to deviate from it substantially and regularly.  Moreover, the extent of this deviation varies by industry in a manner consistent with our model"--Federal Reserve Bank of New York web site.
Notes: Includes bibliographical references.
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