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Rational Expectations and Macroeconomic Forecasts

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  • Victor Zarnowitz

Abstract

This paper presents extensive results from testing for bias and serially correlated errors in a large collection of quarterly multiperiod predictions from surveys conducted since 1968 by the National Bureau of Economic Research and the American Statistical Association. The tests of the joint null hypothesis that the regressions of actual on predicted values have zero intercepts and unitary slope coefficients are very unfavorable to the expectations of inflation, but they show the forecasts of several other variables in a generally much better light. There have been strong tendencies for the forecasters in this period to underestimate inflation and overestimate real growth.Considerable attention is given to the effects of the sample size--the issue of the power of the tests--and also to the extent and role of autocorrelations among the residual errors from these regressions.Rationality in the sense of efficient use of relevant information implies the absence of systematic elements in series of errors from the forecaster's own predictions, measured strictly in the form in which such errors could have been known at the time of the forecast. The frequencies of significant auto-correlations among errors so measured vary greatly across the forecasts for different variables, being very high for inflation, high for inventory investment and the unemployment rate, and much lower for most of the predictions ofthe other variables covered (rates of change in nominal and real GNP and expenditures on consumer durables). The corresponding tests for the group meanforecasts show much less evidence of serially correlated ex ante errors, except for inflation.

Suggested Citation

  • Victor Zarnowitz, 1983. "Rational Expectations and Macroeconomic Forecasts," NBER Working Papers 1070, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1070
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    References listed on IDEAS

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    1. Jacob A. Mincer & Victor Zarnowitz, 1969. "The Evaluation of Economic Forecasts," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 3-46, National Bureau of Economic Research, Inc.
    2. Jacob A. Mincer, 1969. "Models of Adaptive Forecasting," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 83-111, National Bureau of Economic Research, Inc.
    3. Zellner, Arnold, 1981. "Posterior odds ratios for regression hypotheses : General considerations and some specific results," Journal of Econometrics, Elsevier, vol. 16(1), pages 151-152, May.
    4. Gramlich, Edward M, 1983. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 155-173, May.
    5. Zarnowitz, Victor, 1982. "On Functions, Quality, and Timeliness of Economic Information," The Journal of Business, University of Chicago Press, vol. 55(1), pages 87-119, January.
    6. Theodore W. Schultz, 1962. "Reflections on Investment in Man," NBER Chapters, in: Investment in Human Beings, pages 1-8, National Bureau of Economic Research, Inc.
    7. William Poole, 1976. "Rational Expectations in the Macro Model," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 463-514.
    8. William Poole, 2001. "Expectations," Review, Federal Reserve Bank of St. Louis, vol. 83(Mar), pages 1-10.
    9. Pearce, Douglas K, 1979. "Comparing Survey and Rational Measures of Expected Inflation: Forecast Performance and Interest Rate Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 447-456, November.
    10. Nelson, Charles R, 1975. "Rational Expectations and the Predictive Efficiency of Economic Models," The Journal of Business, University of Chicago Press, vol. 48(3), pages 331-343, July.
    11. Rosanne Cole, 1969. "Errors in Provisional Estimates of Gross National Product," NBER Books, National Bureau of Economic Research, Inc, number cole69-1, Juni.
    12. McNees, Stephen K, 1978. "The "Rationality" of Economic Forecasts," American Economic Review, American Economic Association, vol. 68(2), pages 301-305, May.
    13. Victor Zarnowitz, 1982. "The Accuracy of Individual and Group Forecasts from Business Outlook Surveys," NBER Working Papers 1053, National Bureau of Economic Research, Inc.
    14. 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.
    15. Victor Zarnowitz, 1980. "On Functions, Quality, and Timeliness of Economic Information," NBER Working Papers 0608, National Bureau of Economic Research, Inc.
    16. Victor Zarnowitz, 1982. "Expectations and Forecasts from Business Outlook Surveys," NBER Working Papers 0845, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Victor Zarnowitz & Louis A. Lambros, 1983. "Consensus and Uncertainty in Economic Prediction," NBER Working Papers 1171, National Bureau of Economic Research, Inc.
    2. Michael T. Belongia, 1987. "Predicting interest rates: a comparison of professional and market- based forecasts," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 9-15.

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