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Are forecasters reluctant to revise their predictions? Some German evidence

  • Ulrich K. Müller

    (Economics Department, Princeton University, Princeton, New Jersey, USA)

  • Gebhard Kirchgässner

    (University of St Gallen, St Gallen, Switzerland)

People are reluctant to admit mistakes. This could also be true of economic forecasters. If revisions of past forecasts are costly, then it will become optimal for forecasters to only partially adjust a past forecast in the light of new information. The unwillingness to admit to the mistake in the old forecast generates a bias of the new forecast in the direction of the old forecast. We test this hypothesis for the joint predictions of the Association of German Economic Research Institutes over the last 35 years. We find some evidence for such a bias and compute the implied unwillingness to revise forecasts. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/for.995
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 25 (2006)
Issue (Month): 6 ()
Pages: 401-413

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Handle: RePEc:jof:jforec:v:25:y:2006:i:6:p:401-413
DOI: 10.1002/for.995
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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  1. William D. Nordhaus, 1985. "Forecasting Efficiency: Concepts and Applications," Cowles Foundation Discussion Papers 774, Cowles Foundation for Research in Economics, Yale University.
  2. Ito, Takatoshi, 1990. "Foreign Exchange Rate Expectations: Micro Survey Data," American Economic Review, American Economic Association, vol. 80(3), pages 434-49, June.
  3. 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.
  4. Brown, Bryan W & Maital, Shlomo, 1981. "What Do Economists Know? An Empirical Study of Experts' Expectations," Econometrica, Econometric Society, vol. 49(2), pages 491-504, March.
  5. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
  6. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias in Macroeconomic Forecasts," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 293-318.
  7. Clements, Michael P, 1995. "Rationality and the Role of Judgement in Macroeconomic Forecasting," Economic Journal, Royal Economic Society, vol. 105(429), pages 410-20, March.
  8. Wallis, Kenneth F, 1989. "Macroeconomic Forecasting: A Survey," Economic Journal, Royal Economic Society, vol. 99(394), pages 28-61, March.
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