IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Are the representative agent’s beliefs based on efficient econometric models?

  • Bovi, Maurizio

No, they are not; at least not in the UK. By examining GDP dynamics we find that, over a time-span of two decades, an easy-to-perform adaptive expectations model systematically outperforms other standard predictors in terms of squared forecasting errors. This should reduce model uncertainty and thereby lead to increased homogeneity in expectations. However, data collected in surveys show that great variety in expectations persists even in this situation. Moreover, Granger tests indicate that the forecasting fitness of the best predictor can be further enhanced by the use of information provided by survey expectations. These results, based on real-time data and robust to both several predictors and nonlinearities, weaken the general validity of approaches assuming predictions based on efficient econometric models.

If 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.

File URL: http://www.sciencedirect.com/science/article/pii/S0165188912002035
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 3 ()
Pages: 633-648

as
in new window

Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:633-648
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

References listed on IDEAS
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.:

as in new window
  1. Wieland, Volker & Wolters, Maik H., 2010. "The diversity of forecasts from macroeconomic models of the U.S. economy," CFS Working Paper Series 2010/08, Center for Financial Studies (CFS).
  2. Benati, Luca, 2007. "The ‘Great Moderation’ in the United Kingdom," Working Paper Series 0769, European Central Bank.
  3. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 72-100, March.
  4. Guse, Eran A., 2010. "Heterogeneous expectations, adaptive learning, and evolutionary dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 42-57, May.
  5. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information: A Model of Monetary Nonneutrality and Structural Slumps," NBER Working Papers 8614, National Bureau of Economic Research, Inc.
  6. Jan Marc Berk, 1999. "Measuring inflation expectations: a survey data approach," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1467-1480.
  7. Chryssi Giannitsarou & Eva Carceles-Poveda, 2004. "Adaptive Learning in Practice," Computing in Economics and Finance 2004 271, Society for Computational Economics.
  8. Chang-Jin Kim & Charles Nelson & Jeremy M. Piger, 2003. "The less volatile U.S. economy: a Bayesian investigation of timing, breadth, and potential explanations," Working Papers 2001-016, Federal Reserve Bank of St. Louis.
  9. repec:ebl:ecbull:v:3:y:2005:i:47:p:1-13 is not listed on IDEAS
  10. Dasgupta, Susmita & Lahiri, Kajal, 1992. "A Comparative Study of Alternative Methods of Quantifying Qualitative Survey Responses Using NAPM Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 391-400, October.
  11. Tiziana Assenza & Peter Heemeijer & Cars Hommes & Domenico Massaro, 2013. "Individual Expectations and Aggregate Macro Behavior," Tinbergen Institute Discussion Papers 13-016/II, Tinbergen Institute.
  12. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  13. Fabio Milani, 2005. "Expectations, Learning and Macroeconomic Persistence," Macroeconomics 0510022, EconWPA.
  14. Michael F. Bryan & Guhan Venkatu, 2001. "The curiously different inflation perspectives of men and women," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
  15. Jonas Andersson, 2005. "Testing for Granger causality in the presence of measurement errors," Economics Bulletin, AccessEcon, vol. 3(47), pages 1-13.
  16. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
  17. Hommes, Cars, 2011. "The heterogeneous expectations hypothesis: Some evidence from the lab," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 1-24, January.
  18. Mordecai Kurz, 2011. "Symposium: on the role of market belief in economic dynamics, an introduction," Economic Theory, Springer, vol. 47(2), pages 189-204, June.
  19. Orphanides, Athanasios & Williams, John C., 2004. "The decline of activist stabilization policy: natural rate misperceptions, learning, and expectations," Working Paper Series 0337, European Central Bank.
  20. Michael F. Bryan & Guhan Venkatu, 2001. "The demographics of inflation opinion surveys," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
  21. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  22. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2003. "Disagreement about Inflation Expectations," NBER Working Papers 9796, National Bureau of Economic Research, Inc.
  23. Badarinza, Cristian & Buchmann, Marco, 2009. "Inflation perceptions and expectations in the euro area: the role of news," Working Paper Series 1088, European Central Bank.
  24. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
  25. S. G. B Henry & A. R. Pagan, 2004. "The Econometrics of the New Keynesian Policy Model: Introduction," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 581-607, 09.
  26. Carlos Capistrán & Allan Timmermann, 2006. "Disagreement and Biases in Inflation Expectations," Working Papers 2006-07, Banco de México.
  27. David Aadland, 2002. "Cattle Cycles, Heterogeneous Expectations and the Age Distribution of Capital," Others 0211002, EconWPA.
  28. Smith, Jeremy & McAleer, Michael, 1995. "Alternative Procedures for Converting Qualitative Response Data to Quantitative Expectations: An Application to Australian Manufacturing," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 165-85, April-Jun.
  29. Spencer, David E, 1989. "Does Money Matter? The Robustness of Evidence from Vector Autoregressions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 442-54, November.
  30. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  31. Branch, William A. & Evans, George W., 2006. "A simple recursive forecasting model," Economics Letters, Elsevier, vol. 91(2), pages 158-166, May.
  32. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
  33. Bovi, Maurizio, 2009. "Economic versus psychological forecasting. Evidence from consumer confidence surveys," Journal of Economic Psychology, Elsevier, vol. 30(4), pages 563-574, August.
  34. Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring.
  35. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  36. M. Hashem Pesaran & Martin Weale, 2005. "Survey Expectations," IEPR Working Papers 05.30, Institute of Economic Policy Research (IEPR).
  37. Evans, George W. & Honkapohja, Seppo, 2011. "Learning as a Rational Foundation for Macroeconomics and Finance," CEPR Discussion Papers 8340, C.E.P.R. Discussion Papers.
  38. Batchelor, Roy A & Orr, Adrian B, 1988. "Inflation Expectations Revisited," Economica, London School of Economics and Political Science, vol. 55(219), pages 317-31, August.
  39. Magnus Forsells & Geoff Kenny, 2004. "Survey Expectations, Rationality and the Dynamics of Euro Area Inflation," Journal of Business Cycle Measurement and Analysis, OECD Publishing,Centre for International Research on Economic Tendency Surveys, vol. 2004(1), pages 13-41.
  40. Jonas D. M. Fisher & Chin Te Liu & Ruilin Zhou, 2002. "When can we forecast inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 32-44.
  41. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
  42. Branch, William A., 2007. "Sticky information and model uncertainty in survey data on inflation expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 245-276, January.
  43. Hommes, Cars H., 2006. "Heterogeneous Agent Models in Economics and Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 23, pages 1109-1186 Elsevier.
  44. Ricardo Nunes, 2009. "On the Epidemiological Microfoundations of Sticky Information," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(5), pages 643-657, October.
  45. William A. Branch, 2004. "The Theory of Rationally Heterogeneous Expectations: Evidence from Survey Data on Inflation Expectations," Economic Journal, Royal Economic Society, vol. 114(497), pages 592-621, 07.
  46. Michela Nardo, 2003. "The Quantification of Qualitative Survey Data : A Critical Assessment," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 645-668, December.
  47. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  48. James H. Stock & Mark W. Watson, 2003. "Has the business cycle changed?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 9-56.
  49. William Branch & Bruce McGough, 2011. "Business cycle amplification with heterogeneous expectations," Economic Theory, Springer, vol. 47(2), pages 395-421, June.
  50. Clements, Michael P & Hendry, David F, 1995. "Macro-economic Forecasting and Modelling," Economic Journal, Royal Economic Society, vol. 105(431), pages 1001-13, July.
  51. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:633-648. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.