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The Curse of Irving Fisher (Professional Forecasters' Version)

Author

Listed:
  • Gregor W. Smith

    () (Queen's University)

  • James Yetman

    () (University of Hong Kong)

Abstract

Dynamic Euler equations restrict multivariate forecasts. Thus a range of links between macroeconomic variables can be studied by seeing whether they hold within the multivariate predictions of professional forecasters. We illustrate this novel way of testing theory by studying the links between forecasts of U.S. nominal interest rates, inflation, and real consumption growth since 1981. By using forecast data for both returns and macroeconomic fundamentals, we use the complete cross-section of forecasts, rather than the median. The Survey of Professional Forecasters yields a three-dimensional panel, across quarters, forecasters, and forecast horizons. This approach yields 14727 observations, much greater than the 107 time series observations. The resulting precision reveals a significant, negative relationship between consumption growth and interest rates.

Suggested Citation

  • Gregor W. Smith & James Yetman, 2007. "The Curse of Irving Fisher (Professional Forecasters' Version)," Working Papers 1144, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1144
    as

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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1144.pdf
    File Function: First version 2007
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    References listed on IDEAS

    as
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    Cited by:

    1. Devereux, Michael B. & Smith, Gregor W. & Yetman, James, 2012. "Consumption and real exchange rates in professional forecasts," Journal of International Economics, Elsevier, vol. 86(1), pages 33-42.

    More about this item

    Keywords

    forecast survey; asset pricing; Fisher effect;

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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