Evaluating inflation forecasts
In the early 1980s, economists tested inflation forecasts and found that the forecasts were very bad. Either the surveys didn't capture forecasters' expectations, or forecasters didn't have rational expectations. However, the sample period being examined consisted mostly of data from the volatile 1970s, when forecasting was extremely difficult. The question is: If we run the same types of tests that were performed 15 years ago on an updated sample, will we find the same problems with the forecasts? This paper finds that much of the empirical work from 15 years ago does not stand the test of time. The forecast errors from the surveys aren't nearly as bad today as they were in the 1970s. However, some problems remain in the forecasts. It appears to be possible to improve inflation forecasts over some sample periods using bias regressions, and the forecasts don't pass all tests for optimality.
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References listed on IDEAS
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- Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-853, October.
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NBER Chapters,in: Monetary Policy, pages 195-219
National Bureau of Economic Research, Inc.
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- Francis X. Diebold & Jose A. Lopez, 1995. "Forecast evaluation and combination," Research Paper 9525, Federal Reserve Bank of New York.
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- Dean Croushore, 1993. "Introducing: the survey of professional forecasters," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-15.
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- 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.
- Herbert E. Taylor, 1992. "The Livingston Surveys: a history of hopes and fears," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 15-27.
- Roy H. Webb, 1987. "The irrelevance of tests for bias in series of macroeconomic forecasts," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 3-9.
- John A. Carlson, 1977. "A Study of Price Forecasts," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 27-56 National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)
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