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Analyzing Fixed-event Forecast Revisions

  • Michael McAleer

    (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, Complutense University of Madrid, and Institute of Economic Research, Kyoto University)

  • Philip Hans Franses

    (Econometric Institute Erasmus School of Economics Erasmus University Rotterdam)

  • Chia-Lin Chang

    (Department of Applied Economics Department of Finance National Chung Hsing University Taichung, Taiwan)

It is common practice to evaluate fixed-event forecast revisions in macroeconomics by regressing current revisions on one-period lagged revisions. Under weak-form efficiency, the correlation between the current and one-period lagged revisions should be zero. The empirical findings in the literature suggest that the null hypothesis of zero correlation between the current and one-period lagged revisions is rejected quite frequently, where the correlation can be either positive or negative. In this paper we propose a methodology to be able to interpret such non-zero correlations in a straightforward manner. Our approach is based on the assumption that forecasts can be decomposed into both an econometric model and expert intuition. The interpretation of the sign of the correlation between the current and one-period lagged revisions depends on the process governing intuition, and the correlation between intuition and news.

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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 779.

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Date of creation: Jun 2011
Date of revision:
Handle: RePEc:kyo:wpaper:779
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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.
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  9. Chia-Lin Chang & Philip Hans Franses & Michael McAleer, 2009. "How Accurate are Government Forecasts of Economic Fundamentals? The Case of Taiwan," CIRJE F-Series CIRJE-F-637, CIRJE, Faculty of Economics, University of Tokyo.
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  21. Ager, Philipp & Kappler, Marcus & Osterloh, Steffen, 2007. "The Accuracy and Efficiency of the Consensus Forecasts: A Further Application and Extension of the Pooled Approach," ZEW Discussion Papers 07-058, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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