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Judgment can spur long memory

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  • Zanetti Chini, Emilio

Abstract

We arrive at this conclusion by using a new family of models—the Long Memory Dynamic Judgmental Protocol (LMDJP)—where robust filtering and fractionally integrated auto-regressions are combined in an environment characterized by several players—namely, Forecast Producer, Forecast User, and Reality. Namely, we show that if judgment is parametrized as a deformation Likelihood function according to Lq-Likelihood methods, such a deformation affects (sometimes dramatically) the Power Spectrum, consequently inducing over-rejection in formal tests for no LM-effects based on the last. Our simulated and empirical evidence reveals that knowledge of the fractional integration parameter matters for the p-values of tests for spurious LM and, secondly, that the role of LM in belief formation is ambiguous.

Suggested Citation

  • Zanetti Chini, Emilio, 2025. "Judgment can spur long memory," Journal of Economic Dynamics and Control, Elsevier, vol. 170(C).
    • Handle: RePEc:eee:dyncon:v:170:y:2025:i:c:s0165188924001970
    DOI: 10.1016/j.jedc.2024.105005
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    More about this item

    Keywords

    Belief formation; Dynamic systems; Power spectrum; Filtering;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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