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Inattentive professional forecasters

  • Andrade, P.
  • Le Bihan, H.

We use the ECB Survey of Professional Forecasters to characterize the dynamics of expectations at the micro level. We find that forecasters (i) have predictable forecast errors; (ii) disagree; (iii) fail to systematically update their forecasts in the wake of new information; (iv) disagree even when updating; and (v) differ in their frequency of updating and forecast performances. We argue that these micro data facts are qualitatively in line with recent models in which expectations are formed by inattentive agents. However building and estimating an expectation model that features two types of inattention, namely sticky information à la Mankiw-Reis and noisy information à la Sims, we cannot quantitatively generate the error and disagreement that are observed in the SPF data. The rejection is mainly due to the fact that professionals relatively agree on very sluggish forecasts.

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Paper provided by Banque de France in its series Working papers with number 307.

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Length: 56 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:bfr:banfra:307
Contact details of provider: Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/

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  1. Carlos Bowles & Roberta Friz & Veronique Genre & Geoff Kenny & Aidan Meyler & Tuomas Rautanen, 2007. "The ECB survey of professional forecasters (SPF) – A review after eight years’ experience," Occasional Paper Series 59, European Central Bank.
  2. Jonas Dovern & Joerg Doepke & Ulrich Fritsche & Jirka Slacalek, 2006. "Sticky Information Phillips Curves: European Evidence," Macroeconomics and Finance Series 200604, Hamburg University, Department Wirtschaft und Politik.
  3. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2004. "Disagreement about Inflation Expectations," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 209-270 National Bureau of Economic Research, Inc.
  4. Olivier Coibion & Yuriy Gorodnichenko, 2011. "Strategic Interaction among Heterogeneous Price-Setters in an Estimated DSGE Model," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 920-940, August.
  5. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  6. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
  7. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  8. Michael J. Lamla & Samad Sarferaz, 2012. "Updating Inflation Expectations," KOF Working papers 12-301, KOF Swiss Economic Institute, ETH Zurich.
  9. Ricardo Reis, 2004. "Inattentive Consumers," Working Papers 135, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  10. Michael Kiley, 2005. "A Quantitative Comparison Of Sticky-Price And Sticky-Information Models Of Price Setting," Computing in Economics and Finance 2005 183, Society for Computational Economics.
  11. Patton, Andrew J. & Timmermann, Allan, 2010. "Why do forecasters disagree? Lessons from the term structure of cross-sectional dispersion," Journal of Monetary Economics, Elsevier, vol. 57(7), pages 803-820, October.
  12. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
  13. Olivier Coibion, 2010. "Testing the Sticky Information Phillips Curve," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 87-101, February.
  14. Ricardo Reis, 2005. "Inattentive Producers," 2005 Meeting Papers 290, Society for Economic Dynamics.
  15. Zarnowitz, Victor, 1985. "Rational Expectations and Macroeconomic Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 293-311, October.
  16. Fernando Alvarez & Francesco Lippi & Luigi Paciello, 2010. "Optimal Price Setting with Observation and Menu Costs," EIEF Working Papers Series 1010, Einaudi Institute for Economics and Finance (EIEF), revised May 2010.
  17. 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.
  18. M. Hashem Pesaran & Martin Weale, 2005. "Survey Expectations," CESifo Working Paper Series 1599, CESifo Group Munich.
  19. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-58, December.
  20. Klenow, Peter J. & Willis, Jonathan L., 2007. "Sticky information and sticky prices," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 79-99, September.
  21. Olivier Coibion & Yuriy Gorodnichenko, 2012. "What Can Survey Forecasts Tell Us about Information Rigidities?," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 116 - 159.
  22. Olivier Coibion & Yuriy Gorodnichenko, 2012. "Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts," IMF Working Papers 12/296, International Monetary Fund.
  23. Robert B. Barsky & Eric R. Sims, 2012. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," American Economic Review, American Economic Association, vol. 102(4), pages 1343-77, June.
  24. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
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