Inattentive professional forecasters

Abstract

Using the ECB Survey of Professional Forecasters we find evidence that those forecasters draw systematically biased predictions and disagree even if they forecast the same variable. Recent theoretical advances in the macroeconomics of imperfect information relate these bias and disagreement to theories of inattention. We provide a micro data estimation of the extent of inattention among professional forecasters. We show that, on our sample, about 20% of professional forecasters are inattentive to new information released each quarter. However, a formal test reveals that this observed inattention cannot generate the extent of systematic forecasting errors and disagreement among forecasters characterizing the data. There is more stickiness in expectations than the one the mere inattention is able to generate.Keywords: Expectations, information, disagreement, inattention, business cycle * We thank Anil Kashyap, Noburo Kiyotaki, Bartosz Maćkowiak, Ernesto Pastén, Giorgio Primiceri, Jonathan Willis, Alexander Wolman, Michael Woodford and seminar participants at the ECB and Banque de France for useful comments. We are also grateful to Sylvie Tarrieu for superb research assistance as to Claudia Marchini and Ieva Rubene for their help with the SPF data. This paper does not reflect the views of the Banque de France.

Measuring Disagreement in Qualitative Expectations

“…This observation is consistent with recent imperfect information theories: when forming expectations, consumers face a tremendous amount of frictions and limitations in acquiring and processing of information (cf. Coibion & Gorodnichenko, ; Andrade & Le‐Bihan, ). Turning to the qualitative short‐run forecasts in Figure , the share of ‘go up’ responses mostly stays above 70%, even during periods with low or declining inflation.…”

Inflation Expectations and Monetary Policy Surprises*

“… The latter has been the focus of the recent literature on inflation expectations, including work by Campbell et al . (), Andrade and Le Bihan (), and Coibion and Gorodnichenko (). While consumers’ forecasts might be less accurate than professionals’ forecasts, consumers’ expectations provide a useful angle from which to understand the impact of monetary policy surprises on the economy, given the important role that consumers play in the economy.…”

Direct Evidence on Sticky Information from the Revision Behavior of Professional Forecasters

“…We presume an economist revising a prior forecast updated his information set before announcing the revision. Andrade and Le Bihan (, p. 973) observe that a forecaster could update his information and not revise his forecast, thus forecast revision frequency should be viewed as a lower bound on information updating frequency. As actual and predicted interest rates (unemployment rates) are reported to 2 decimal places (1 decimal place), forecasters would revise their forecasts only if they predicted interest rate (unemployment rate) changes of at least 1 basis point (10 basis points).…”

“…2 Later work investigates the sticky-information model using more direct methods. Andrade and Le Bihan (2013) measure the fraction of forecasters revising their forecasts each quarter in the European Survey of Professional Forecasters. They find that, on average, forecasters update their inflation forecasts about every 4 months, more frequently than found by Mankiw, Reis, and Wolfers (2003) and Coibion and Gorodnichenko (2015).…”