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Comparing the Point Predictions and Subjective Probability Distributions of Professional Forecasters

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  • Joseph Engelberg
  • Charles F. Manski
  • Jared Williams

Abstract

We use data from the Survey of Professional Forecasters to compare point forecasts of GDP growth and inflation with the subjective probability distributions held by forecasters. We find that SPF forecasters summarize their underlying distributions in different ways and that their summaries tend to be favorable relative to the central tendency of the underlying distributions. We also find that those forecasters who report favorable point estimates in the current survey tend to do so in subsequent surveys. These findings, plus the inescapable fact that point forecasts reveal nothing about the uncertainty that forecasters feel, suggest that the SPF and similar surveys should not ask for point forecasts. It seems more reasonable to elicit probabilistic expectations and derive measures of central tendency and uncertainty, as we do here.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11978.

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Date of creation: Jan 2006
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Publication status: published as Engelberg, Joseph, Charles F. Manski and “Comparing the Point Predictions and Subjective Probability Distributions of Professional Forecasters." Journal of Business and Economic Statistics 165 (2009): 146-158.
Handle: RePEc:nbr:nberwo:11978

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  1. F. Thomas Juster, 1966. "Consumer Buying Intentions and Purchase Probability: An Experiment in Survey Design," NBER Books, National Bureau of Economic Research, Inc, number just66-2, octubre-d.
  2. William F. Bassett & Robin L. Lumsdaine, 2001. "Probability Limits: Are Subjective Assessments Adequately Accurate?," Journal of Human Resources, University of Wisconsin Press, vol. 36(2), pages 327-363.
  3. Rich, R W & Raymond, J E & Butler, J S, 1992. "The Relationship between Forecast Dispersion and Forecast Uncertainty: Evidence from a Survey Data-ARCH Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(2), pages 131-48, April-Jun.
  4. Robert Rich & Joe Tracy, 2000. "Uncertainty and labor contract durations," Staff Reports 106, Federal Reserve Bank of New York.
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  6. Giordani, Paolo & Söderlind, Paul, 2002. "Is there Evidence of Pessimism and Doubt in Subjective Distributions? A Comment on Abel," Working Paper Series in Economics and Finance 519, Stockholm School of Economics, revised 15 Aug 2003.
  7. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  8. Lahiri, Kajal & Teigland, Christie & Zaporowski, Mark, 1988. "Interest Rates and the Subjective Probability Distribution of Inflation Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 233-48, May.
  9. Manski, C.F., 1989. "The Use Of Intentions Data To Predict Behaviour : A Best- Case Analysis," Working papers 8905, Wisconsin Madison - Social Systems.
  10. Levi, Maurice D & Makin, John H, 1979. "Fisher, Phillips, Friedman and the Measured Impact of Inflation on Interest," Journal of Finance, American Finance Association, vol. 34(1), pages 35-52, March.
  11. Victor Zarnowitz & Louis A. Lambros, 1983. "Consensus and Uncertainty in Economic Prediction," NBER Working Papers 1171, National Bureau of Economic Research, Inc.
  12. Zarnowitz, Victor & Lambros, Louis A, 1987. "Consensus and Uncertainty in Economic Prediction," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 591-621, June.
  13. Söderlind, Paul, 2000. "Inflation Forecast Uncertainty," CEPR Discussion Papers 2499, C.E.P.R. Discussion Papers.
  14. Bomberger, William A, 1996. "Disagreement as a Measure of Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 381-92, August.
  15. Joon-Ho Hahm & Douglas G. Steigerwald, 1999. "Consumption Adjustment under Time-Varying Income Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 32-40, February.
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