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What can survey forecasts tell us about informational rigidities?

  • Yuriy Gorodnichenko

    (UC Berkeley)

  • Olivier Coibion

    (College of William & Mary)

This paper assesses both the support for and the properties of informational rigidities faced by agents. Specifically, we track the impulse responses of mean forecast errors and disagreement among agents after exogenous structural shocks. Our key contribution is to document that in response to structural shocks, mean forecasts fail to completely adjust on impact, leading to statistically and economically significant deviations from the null of full information: the half life of forecast errors is roughly between 6 months and a year. Importantly, the dynamic process followed by forecast errors following structural shocks is consistent with the predictions of models of informational rigidities. We interpret this finding as providing support for the recent expansion of research into models of informational rigidities. In addition, we document several stylized facts about the conditional responses of forecast errors and disagreement among agents that can be used to differentiate between some of the models of informational rigidities recently proposed. We use a variety of structural shocks, expectation surveys, and robustness checks to establish these facts about informational rigidities.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 277.

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Date of creation: 2010
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Handle: RePEc:red:sed010:277
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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