Analyzing Fixed-event Forecast Revisions

Philip Hans Franses, Chia-Lin Chang and Michael McAleer

No EI 2011-22, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: It is common practice to evaluate fixed-event forecast revisions in macroeconomics by regressing current revisions on one-period lagged revisions. Under weak-form efficiency, the correlation between the current and one-period lagged revisions should be zero. The empirical findings in the literature suggest that the null hypothesis of zero correlation between the current and one-period lagged revisions is rejected quite frequently, where the correlation can be either positive or negative. In this paper we propose a methodology to be able to interpret such non-zero correlations in a straightforward manner. Our approach is based on the assumption that forecasts can be decomposed into both an econometric model and expert intuition. The interpretation of the sign of the correlation between the current and one-period lagged revisions depends on the process governing intuition, and the correlation between intuition and news.

Keywords: evaluating forecasts; fixed-event forecasts; intuition; macroeconomic forecasting; rationality; weak-form efficiency (search for similar items in EconPapers)
JEL-codes: C22 C53 E27 E37 (search for similar items in EconPapers)
Date: 2011-06-30
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https://repub.eur.nl/pub/23785/EI2011-22.pdf (application/pdf)

Related works:
Journal Article: Analyzing fixed-event forecast revisions (2013)
Working Paper: Analyzing Fixed-Event Forecast Revisions (2013)
Working Paper: Analyzing Fixed-event Forecast Revisions (2013)
Working Paper: Analyzing Fixed-event Forecast Revisions (2011)
Working Paper: Analyzing Fixed-event Forecast Revisions (2011)
Working Paper: Analyzing Fixed-event Forecast Revisions (2011)
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