Rational Bias in Macroeconomic Forecasts

Laster, David; Bennett, Paul B.; Geoum, In Sun

doi:10.1162/003355399555918

Cited by 281 publications

(186 citation statements)

References 11 publications

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“…Such forecast differentiation is likely to result in "extreme" forecasts, which may be a source of the cross-sectional heterogeneity of forecasts that we have observed in our empirical analysis. Attempts to differentiate forecasts, in turn, may reflect that forecasters are paid according to their relative forecasting success, as in the model suggested by Laster et al (1999). If so, forecast accuracy is not the only argument in forecasters' loss function, implying that the kind of asymmetric loss functions underlying the estimation approach developed by Elliott et al (2005) may not suffice to model how forecasters form their forecasts.…”

Section: Discussionmentioning

confidence: 99%

Forecasting the Brazilian real and the Mexican peso: Asymmetric loss, forecast rationality, and forecaster herding

Fritsche¹,

Pierdzioch

Rülke

et al. 2015

International Journal of Forecasting

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractUsing forecasts of the Brazilian real and the Mexican peso, we analyze the shape of the loss function of exchange-rate forecasters and the rationality of their forecasts. We find a substantial degree of cross-sectional heterogeneity with respect to the shape of the loss function. While some forecasters seem to forecasts under an asymmetric loss function, symmetry of the loss function cannot be rejected for other forecasters. An asymmetric loss function does not necessarily make survey data of exchange-rate forecasts look rational, and the loss function seems to depend not only on the forecast error.JEL classification: F31, D84

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Section: Discussionmentioning

confidence: 99%

Forecasting the Brazilian real and the Mexican peso: Asymmetric loss, forecast rationality, and forecaster herding

Fritsche¹,

Pierdzioch

Rülke

et al. 2015

International Journal of Forecasting

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show abstract

“…A set of possible issues that we do not address is that forecasters may face economic incentives to act strategically in the sense of balancing accuracy against con ‡icting aims, such as convincing the market that they are well-informed, or of attracting media attention (see, e.g., Ehrbeck and Waldmann (1996), Laster, Bennett and Geoum (1999) and Ottaviani and Sorensen (2006)). It is possible that these factors may impinge di¤erently on the point forecasts and histograms.…”

Section: Introductionmentioning

confidence: 99%

Explanations of the inconsistencies in survey respondents’ forecasts

Clements

2010

European Economic Review

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A comparison of the point forecasts and the central tendencies of probability distributions of in ‡ation and output growth of the SPF indicates that the point forecasts are sometimes optimistic relative to the probability distributions. We consider and evaluate a number of possible explanations for this …nding, including the degree of uncertainty concerning the future, computational costs, delayed updating, and asymmetric loss. We also consider the relative accuracy of the two sets of forecasts. Journal of Economic Literature classi…cation: C53, E32, E37Keywords: Rationality, point forecasts, probability distributions.Computations were performed using code written in the Gauss Programming Language, and STATA. Helpful comments were received when the paper was presented at the European Central Bank and the International Symposium of Forecasting, Nice, June 2008. Special thanks are due to Daniel Sgroi and Mark Stewart. 1Explanations of the inconsistencies in survey respondents'forecasts A comparison of the point forecasts and the central tendencies of probability distributions of in ‡ation and output growth of the SPF indicates that the point forecasts are sometimes optimistic relative to the probability distributions. We consider and evaluate a number of possible explanations for this …nding, including the degree of uncertainty concerning the future, computational costs, delayed updating, and asymmetric loss. We also consider the relative accuracy of the two sets of forecasts.Journal of Economic Literature classi…cation: C53, E32, E37

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“…A possibility that we have not addressed is that forecasters may face economic incentives not to report their true beliefs: see, e.g., Ehrbeck and Waldmann (1996), Laster, Bennett and Geoum (1999) and Ottaviani and Sorensen (2006). Forecasters may act strategically in the sense that they balance their goal of minimizing forecast errors against con ‡icting aims, such as convincing the market that they are well-informed, or of attracting media attention.…”

Section: Discussionmentioning

confidence: 99%

Internal Consistency of Survey Respondents' Forecasts: Evidence Based on the Survey of Professional Forecasters*

Clements¹

2009

The Methodology and Practice of Econometrics

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We ask whether the di¤erent types of forecasts made by individual survey respondents are mutually consistent, using the SPF survey data. We compare the point forecasts and central tendencies of probability distributions matched by individual respondent, and compare the forecast probabilities of declines in output with the probabilities implied by the probability distributions. When the expected associations between these di¤erent types of forecasts do not hold for some idividuals, we consider whether the discrepancies we observe are consistent with rational behaviour by agents with asymmetric loss functions.Journal of Economic Literature classi…cation: C53, E32, E37

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Rational Bias in Macroeconomic Forecasts

Cited by 281 publications

References 11 publications

Forecasting the Brazilian real and the Mexican peso: Asymmetric loss, forecast rationality, and forecaster herding

Forecasting the Brazilian real and the Mexican peso: Asymmetric loss, forecast rationality, and forecaster herding

Explanations of the inconsistencies in survey respondents’ forecasts

Internal Consistency of Survey Respondents' Forecasts: Evidence Based on the Survey of Professional Forecasters*

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