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Pooling forecasts in linear rational expectations models

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  • Smith, Gregor W.

Abstract

Estimating linear rational expectations models in a limited-information setting requires replacing the expectations of future, endogenous variables either with instrumented, actual values or with forecast survey data. Applying the method of Gottfries and Persson [Empirical examinations of the information sets of economic agents. Quarterly Journal of Economics 103, 251-259], I show how to augment these methods with actual, future values of the endogenous variables to improve statistical efficiency. The method is illustrated with an application to the US hybrid new Keynesian Phillips curve, where traditional, lagged instruments and the median forecast from the Survey of Professional Forecasters both appear to miss significant information used by price-setters, so that forecast pooling with actual values improves the statistical fit to inflation.

Suggested Citation

  • Smith, Gregor W., 2009. "Pooling forecasts in linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 33(11), pages 1858-1866, November.
    • Handle: RePEc:eee:dyncon:v:33:y:2009:i:11:p:1858-1866
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    Cited by:

    1. Paul Hubert & Harun Mirza, 2014. "Inflation expectation dynamics: the role of past present and forward looking information," Working Papers hal-03473828, HAL.
    2. James Yetman & Gregor W. Smith, 2007. "The Curse Of Irving Fisher (professional Forecasters' Version)," Working Paper 1144, Economics Department, Queen's University.
    3. Paul Hubert & Harun Mirza, 2019. "The role of forward‐ and backward‐looking information for inflation expectations formation," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 38(8), pages 733-748, December.
    4. Sophocles Mavroeidis & Mikkel Plagborg-Møller & James H. Stock, 2014. "Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 124-188, March.
    5. Ricardo Nunes, 2010. "Inflation Dynamics: The Role of Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1161-1172, September.
    6. James M. Nason & Gregor W. Smith, 2008. "The New Keynesian Phillips curve : lessons from single-equation econometric estimation," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 94(Fall), pages 361-395.
    7. repec:hal:wpspec:info:hdl:2441/6g0gsihsjmn5snc9pb0hlas97 is not listed on IDEAS
    8. repec:spo:wpecon:info:hdl:2441/6g0gsihsjmn5snc9pb0hlas97 is not listed on IDEAS
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    10. Víctor López-Pérez, 2017. "Do professional forecasters behave as if they believed in the New Keynesian Phillips Curve for the euro area?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(1), pages 147-174, February.
    11. repec:hal:spmain:info:hdl:2441/3v5mev848s8148gjqcbf4mva5q is not listed on IDEAS

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    More about this item

    Keywords

    Forecast pooling Recursive projection New Keynesian Phillips curve;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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