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Forecast bias in two dimensions

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  • Dean Croushore
Abstract
Economists have tried to uncover stylized facts about people?s expectations, testing whether such expectations are rational. Tests in the early 1980s suggested that expectations were biased, and some economists took irrational expectations as a stylized fact. But, over time, the results of tests that led to such a conclusion were reversed. In this paper, we examine how tests for bias in expectations, measured using the Survey of Professional Forecasters, have changed over time. In addition, key macroeconomic variables that are the subject of forecasts are revised over time, causing problems in determining how to measure the accuracy of forecasts. The results of bias tests are found to depend on the subsample in question, as well as what concept is used to measure the actual value of a macroeconomic variable. Thus, our analysis takes place in two dimensions: across subsamples and with alternative measures of realized values of variables.

Suggested Citation

  • Dean Croushore, 2012. "Forecast bias in two dimensions," Working Papers 12-9, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:12-9
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    Cited by:

    1. Barbara Rossi & Tatevik Sekhposyan, 2016. "Forecast Rationality Tests in the Presence of Instabilities, with Applications to Federal Reserve and Survey Forecasts," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(3), pages 507-532, April.
    2. El-Shagi, Makram & Giesen, Sebastian & Jung, Alexander, 2012. "Does Central Bank Staff Beat Private Forecasters?," IWH Discussion Papers 5/2012, Halle Institute for Economic Research (IWH).
    3. Julieta Caunedo & Riccardo Dicecio & Ivana Komunjer & Michael T. Owyang, 2020. "Asymmetry, Complementarities, and State Dependence in Federal Reserve Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(1), pages 205-228, February.

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    Keywords

    Forecasting; Rational expectations (Economic theory);

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