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Rational Bias in Macroeconomic Forecasts

Author

Listed:
  • David Laster
  • Paul Bennett
  • In Sun Geoum

Abstract

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.

Suggested Citation

  • David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias in Macroeconomic Forecasts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 293-318.
    • Handle: RePEc:oup:qjecon:v:114:y:1999:i:1:p:293-318.
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    File URL: http://hdl.handle.net/10.1162/003355399555918
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