We seek to understand what can be inferred from the movement of and revisions to fixed-event density forecasts. This involves extending efficiency tests used to examine fixed-event forecasts from the point to density case. The extension requires the revision to a density forecast to be reduced to a revision to an event forecast; this is because revisions to the density forecasts themselves, as measured by the KLIC, need not be unpredictable even when the forecast is rational. We consider an application to inflation and output growth density forecasts from the Survey of Professional Forecasters. We find that while fixed-event density forecasts for inflation appear inefficient, there is greater evidence that those for GDP growth are efficient. We also extract information from the fixed-event density forecasts about the SPF's perceptions of the persistence of inflation and output growth. These perceptions are related to the decline in macroeconomic volatility observed in the United States.
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Paper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number
296.