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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dean Croushore, 2006.
"An evaluation of inflation forecasts from surveys using real-time data,"
06-19, Federal Reserve Bank of Philadelphia.
- Croushore Dean, 2010. "An Evaluation of Inflation Forecasts from Surveys Using Real-Time Data," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-32, May.
- John Y. Campbell & John H. Cochrane, 1994.
"By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior,"
CRSP working papers
412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- John Y. Campbell & John H. Cochrane, 1995. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," NBER Working Papers 4995, National Bureau of Economic Research, Inc.
- John Y. Campbell & John H. Cochrane, 1994. "By force of habit: a consumption-based explanation of aggregate stock market behavior," Working Papers 94-17, Federal Reserve Bank of Philadelphia.
- Cochrane, John H. & Campbell, John, 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Scholarly Articles 3119444, Harvard University Department of Economics.
- John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
- Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
- Zarnowitz, Victor, 1985. "Rational Expectations and Macroeconomic Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 293-311, October.
- Smith, Gregor W., 2009.
"Pooling forecasts in linear rational expectations models,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 33(11), pages 1858-1866, November.
- Gregor W. Smith, 2007. "Pooling Forecasts in Linear Rational Expectations Models," Working Papers 1129, Queen's University, Department of Economics.
- Donald W.K. Andrews & James H. Stock, 2005.
"Inference with Weak Instruments,"
Cowles Foundation Discussion Papers
1530, Cowles Foundation for Research in Economics, Yale University.
- Lloyd B. Thomas, 1999. "Survey Measures of Expected U.S. Inflation," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 125-144, Fall.
- Gottfries, Nils & Persson, Torsten, 1988. "Empirical Examinations of the Information Sets of Economic Agents," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 251-59, February.
- Christopher D Carroll, 2002.
"Macroeconomic Expectations of Households and Professional Forecasters,"
Economics Working Paper Archive
477, The Johns Hopkins University,Department of Economics.
- Christopher D. Carroll, 2003. "Macroeconomic Expectations Of Households And Professional Forecasters," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 269-298, February.
- Campbell, John Y, 1986.
"Bond and Stock Returns in a Simple Exchange Model,"
The Quarterly Journal of Economics,
MIT Press, vol. 101(4), pages 785-803, November.
- Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-35, September.
- Carl S Bonham & Richard H Cohen, 2000. "Testing the Rational Expectations Hypothesis using Survey Data," Working Papers 200007, University of Hawaii at Manoa, Department of Economics.
- Neely, Christopher J & Roy, Amlan & Whiteman, Charles H, 2001. "Risk Aversion versus Intertemporal Substitution: A Case Study of Identification Failure in the Intertemporal Consumption Capital Asset Pricing Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(4), pages 395-403, October.
- Motohiro Yogo, 2004. "Estimating the Elasticity of Intertemporal Substitution When Instruments Are Weak," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 797-810, August.
- Michael B. Devereux & Gregor W. Smith & James Yetman, 2009.
"Consumption and Real Exchange Rates in Professional Forecasts,"
NBER Working Papers
14795, National Bureau of Economic Research, Inc.
- Devereux, Michael B. & Smith, Gregor W. & Yetman, James, 2012. "Consumption and real exchange rates in professional forecasts," Journal of International Economics, Elsevier, vol. 86(1), pages 33-42.
- Michael B Devereux & Gregor W Smith & James Yetman, 2009. "Consumption and real exchange rates in professional forecasts," BIS Working Papers 295, Bank for International Settlements.
- Michael B. Devereux & Gregor W. Smith & James Yetman, 2009. "Consumption and Real Exchange Rates in Professional Forecasts," Working Papers 1195, Queen's University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Babcock).
If references are entirely missing, you can add them using this form.