The Curse of Irving Fisher (Professional Forecasters' Version)
AbstractDynamic Euler equations restrict multivariate forecasts. Thus a range of links between macroeconomic variables can be studied by seeing whether they hold within the multivariate predictions of professional forecasters. We illustrate this novel way of testing theory by studying the links between forecasts of U.S. nominal interest rates, inflation, and real consumption growth since 1981. By using forecast data for both returns and macroeconomic fundamentals, we use the complete cross-section of forecasts, rather than the median. The Survey of Professional Forecasters yields a three-dimensional panel, across quarters, forecasters, and forecast horizons. This approach yields 14727 observations, much greater than the 107 time series observations. The resulting precision reveals a significant, negative relationship between consumption growth and interest rates.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1144.
Length: 30 pages
Date of creation: Nov 2007
Date of revision:
forecast survey; asset pricing; Fisher effect;
Find related papers by JEL classification:
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-01 (All new papers)
- NEP-ECM-2007-12-01 (Econometrics)
- NEP-FOR-2007-12-01 (Forecasting)
- NEP-MAC-2007-12-01 (Macroeconomics)
- NEP-MON-2007-12-01 (Monetary Economics)
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