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Forecast bias in two dimensions

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  • Dean Croushore

Abstract

Economists have tried to uncover stylized facts about people’s expectations, testing whether such expectations are rational. Tests in the early 1980s suggested that expectations were biased, and some economists took irrational expectations as a stylized fact. But, over time, the results of tests that led to such a conclusion were reversed. In this paper, we examine how tests for bias in expectations, measured using the Survey of Professional Forecasters, have changed over time. In addition, key macroeconomic variables that are the subject of forecasts are revised over time, causing problems in determining how to measure the accuracy of forecasts. The results of bias tests are found to depend on the subsample in question, as well as what concept is used to measure the actual value of a macroeconomic variable. Thus, our analysis takes place in two dimensions: across subsamples and with alternative measures of realized values of variables.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 12-9.

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Date of creation: 2012
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Handle: RePEc:fip:fedpwp:12-9

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Keywords: Forecasting ; Rational expectations (Economic theory);

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  1. Timmermann, Allan G, 2005. "Forecast Combinations," CEPR Discussion Papers 5361, C.E.P.R. Discussion Papers.
  2. Dean Croushore & Tom Stark, 1999. "A real-time data set for macroeconomists," Working Papers 99-4, Federal Reserve Bank of Philadelphia.
  3. Hafer, R W & Hein, Scott E, 1985. "On the Accuracy of Time-Series, Interest Rate, and Survey Forecasts of Inflation," The Journal of Business, University of Chicago Press, vol. 58(4), pages 377-98, October.
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