Rational bias in macroeconomic forecasts
This paper develops a model of macroeconomic forecasting in which a forecaster's wage is a function of his accuracy as well as the publicity he generates for his firm by being correct. In the resulting Nash equilibrium, forecasters with identical models, information, and incentives nevertheless produce a variety of predictions, consciously biasing them in order to maximize expected wages. In the case of heterogeneous incentives, the forecasters whose wages are most closely tied to publicity, as opposed to accuracy, produce the forecasts that deviate most from the consensus. We find empirical support for our model using a twenty-year panel of real GNP/GDP forecast data from Blue Chip Economic Indicators. Although the consensus outperforms virtually every forecaster, many forecasters choose to deviate from it substantially and regularly. Moreover, the extent of this deviation varies by industry in a manner consistent with our model.
|Date of creation:||1996|
|Contact details of provider:|| Postal: 33 Liberty Street, New York, NY 10045-0001|
Web page: http://www.newyorkfed.org/
More information through EDIRC
|Order Information:|| Email: |
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.:
- McNees, Stephen K., 1989. "Forecasts and actuals: The trade-off between timeliness and accuracy," International Journal of Forecasting, Elsevier, vol. 5(3), pages 409-416.
- Francis X. Diebold & Jose A. Lopez, 1995.
"Forecast evaluation and combination,"
9525, Federal Reserve Bank of New York.
- Francis X. Diebold & Jose A. Lopez, 1996. "Forecast Evaluation and Combination," NBER Technical Working Papers 0192, National Bureau of Economic Research, Inc.
- Keane, Michael & Runkle, David E, 1995. "Testing the Rationality of Price Forecasts: Reply," American Economic Review, American Economic Association, vol. 85(1), pages 290-290, March.
- Ito, Takatoshi, 1990. "Foreign Exchange Rate Expectations: Micro Survey Data," American Economic Review, American Economic Association, vol. 80(3), pages 434-449, June.
- Takatoshi Ito, 1988. "Foreign Exchange Rate Expectations: Micro Survey Data," NBER Working Papers 2679, National Bureau of Economic Research, Inc.
- Lamont, Owen A., 2002. "Macroeconomic forecasts and microeconomic forecasters," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 265-280, July.
- Owen Lamont, 1995. "Macroeconomics Forecasts and Microeconomic Forecasters," NBER Working Papers 5284, National Bureau of Economic Research, Inc.
- 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 714-735, September.
- Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
- Scharfstein, David. & Stein, Jeremy C., 1988. "Herd behavior and investment," Working papers WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- McNees, Stephen K, 1978. "The "Rationality" of Economic Forecasts," American Economic Review, American Economic Association, vol. 68(2), pages 301-305, May.
- Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
- Jeong, Jinook & Maddala, G S, 1996. "Testing the Rationality of Survey Data Using the Weighted Double-Bootstrapped Method of Moments," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 296-302, May.
- Stephen K. McNees, 1992. "How large are economic forecast errors?," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 25-42. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:fip:fednrp:9617. 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: (Amy Farber)
If references are entirely missing, you can add them using this form.