Testing the Rationality of Price Forecasts: New Evidence from Panel Data

This paper tests the rationality of individual price forecasts in a panel of professional forecasters. Here, unlike in most previous studies, rationality is not rejected. The results here differ because (1) using individual forecasts avoids aggregation bias, (2) comparison of forecasts to initial data avoids bias due to data revision, (3) the professional forecasters have economic incentives to state their expectations accurately, and (4) a new covariance matrix estimator consistent when forecast errors are correlated across individuals is used. Copyright 1990 by American Economic Association.

[1]  David E. Runkle,et al.  Liquidity constraints and the permanent-income hypothesis: Evidence from panel data , 1991 .

[2]  M. Keane,et al.  Are economic forecasts rational , 1989 .

[3]  K. West,et al.  Asymptotic normality, when regressors have a unit root , 1988 .

[4]  N. Gregory Mankiw,et al.  News or Noise : An Analysis of GNP Revisions , 2007 .

[5]  W. Newey,et al.  A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelationconsistent Covariance Matrix , 1986 .

[6]  A. Cukierman.  Measuring inflationary expectations: A review essay , 1986 .

[7]  M. Lovell,et al.  Tests of the Rational Expectations Hypothesis , 1986 .

[8]  Stephen K. McNees.  Estimating GNP: the trade-off between timeliness and accuracy , 1986 .

[9]  Kenneth A. Froot,et al.  Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations , 1985 .

[10]  J. Caskey.  Modeling the Formation of Price Expectations: A Bayesian Approach , 1985 .

[11]  F. Leeuw,et al.  Price Expectations of Business Firms: Bias in the Short and Long Run , 1984 .

[12]  M. Watson.  Imperfect Information and Wage Inertia in the Business Cycle: A Comment , 1983, Journal of Political Economy.

[13]  Edward M. Gramlich,et al.  Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts , 1983 .

[14]  P. Wachtel,et al.  The Structure of Expectations of the Weekly Money Supply Announcement , 1983 .

[15]  Herschel I. Grossman,et al.  Tests of Equilibrium Macroeconomics Using Contemporaneous Monetary Data , 1981 .

[16]  Shlomo Maital,et al.  What Do Economists Know? An Empirical Study of Experts' Expectations , 1981 .

[17]  Stephen Figlewski,et al.  The Formation of Inflationary Expectations , 1981 .

[18]  F. Leeuw,et al.  Price Expectations of Business Firms , 1981 .

[19]  Jonathan S. Leonard.  Wage Expectations in the Labor Market: Survey Evidence on Rationality , 1980 .

[20]  Donald J. Mullineaux.  Inflation Expectations and Money Growth in the United States , 1980 .

[21]  Donald J. Mullineaux.  On Testing for Rationality: Another Look at the Livingston Price Expectations Data , 1978, Journal of Political Economy.

[22]  K. Arrow.  The Future and the Present in Economic Life , 1978 .

[23]  J. Carlson.  A Study of Price Forecasts , 1977 .

[24]  E. Prescott.  Should control theory be used for economic stabilization , 1977 .

[25]  Thomas J. Sargent,et al.  The Observational Equivalence of Natural and Unnatural Rate Theories of Macroeconomics , 1976, Journal of Political Economy.

[26]  J. E. Pesando,et al.  A Note on the Rationality of the Livingston Price Expectations , 1975, Journal of Political Economy.

[27]  M. Lovell,et al.  Sales Anticipation and Inventory Behavior. , 1971 .

[28]  Victor Zarnowitz,et al.  The New ASA-NBER Survey of Forecasts by Economic Statisticians , 1969 .

[29]  Victor Zarnowitz,et al.  An appraisal of short-term economic forecasts , 1967 .

[30]  J. Muth.  Rational Expectations and the Theory of Price Movements , 1961 .

[31]  J. Keynes.  The General Theory of Employment , 1937 .