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Forecast Error Information and Heterogeneous Expectations in Learning-to-Forecast Macroeconomic Experiments

In: Experiments in Macroeconomics

Author

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  • Luba Petersen
Abstract
This article explores the importance of accessible and focal information in influencing beliefs and attention in a learning-to-forecast laboratory experiment where subjects are incentivized to form accurate expectations about inflation and the output gap. We consider the effects of salient and accessible forecast error information and learning on subjects’ forecasting accuracy and heuristics, and on aggregate stability. Experimental evidence indicates that, while there is considerable heterogeneity in the heuristics used, subjects’ forecasts can be best described by a constant gain learning model where subjects respond to forecast errors. Salient forecast error information reduces subjects’ overreaction to their errors and leads to greater forecast accuracy, coordination of expectations, and macroeconomic stability. The benefits of this focal information are short-lived and diminish with learning.

Suggested Citation

  • Luba Petersen, 2014. "Forecast Error Information and Heterogeneous Expectations in Learning-to-Forecast Macroeconomic Experiments," Research in Experimental Economics, in: Experiments in Macroeconomics, volume 17, pages 109-137, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rexezz:s0193-230620140000017004
    DOI: 10.1108/S0193-230620140000017004
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    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. repec:hal:spmain:info:hdl:2441/7t8isspkbs8hk8kol9kk9sjdl6 is not listed on IDEAS
    2. Camille Cornand & Cheick Kader M’baye, 2018. "Band or point inflation targeting? An experimental approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 13(2), pages 283-309, July.
    3. Cornand, Camille & Hubert, Paul, 2020. "On the external validity of experimental inflation forecasts: A comparison with five categories of field expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    4. repec:spo:wpmain:info:hdl:2441/7t8isspkbs8hk8kol9kk9sjdl6 is not listed on IDEAS
    5. Luba Petersen & Jasmina Arifovic, 2015. "Escaping Expectations-Driven Liquidity Traps: Experimental Evidence," Discussion Papers dp15-03, Department of Economics, Simon Fraser University.
    6. Cornand, Camille & Hubert, Paul, 2022. "Information frictions across various types of inflation expectations," European Economic Review, Elsevier, vol. 146(C).
    7. Camille Cornand & Paul Hubert, 2021. "Information frictions in inflation expectations among five types of economic agents," SciencePo Working papers Main halshs-03351632, HAL.
    8. repec:spo:wpmain:info:hdl:2441/6o4qdck7489u7pqc068eeuqsnq is not listed on IDEAS
    9. Camille Cornand & Paul Hubert, 2021. "Information frictions in inflation expectations among five types of economic agents," Working Papers hal-03468918, HAL.
    10. Camille Cornand & Paul Hubert, 2018. "On the external validity of experimental inflation forecasts: A comparison with five categories of field expectations," Working Papers halshs-01890770, HAL.
    11. Arifovic, Jasmina & Petersen, Luba, 2017. "Stabilizing expectations at the zero lower bound: Experimental evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 82(C), pages 21-43.
    12. Mauersberger, Felix, 2021. "Monetary policy rules in a non-rational world: A macroeconomic experiment," Journal of Economic Theory, Elsevier, vol. 197(C).
    13. repec:hal:spmain:info:hdl:2441/6o4qdck7489u7pqc068eeuqsnq is not listed on IDEAS

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