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

Michael P. Keane · David Edward Runkle

499 citations0/0 files storedAmerican Economic Review

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Abstract

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.

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References

1961Rational Expectations and the Theory of Price Movements 1937The General Theory of Employment 1985Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations 1991Liquidity constraints and the permanent-income hypothesis 1988Asymptotic Normality, When Regressors Have a Unit Root 1986News or Noise? An Analysis of GNP Revisions 1976The Observational Equivalence of Natural and Unnatural Rate Theories of Macroeconomics

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2008Forecasting with panel data 1997A Model Selection Approach to Real-Time Macroeconomic Forecasting Using Linear Models and Artificial Neural Networks 1992On the Estimation of Panel-Data Models With Serial Correlation When Instruments Are Not Strictly Exogenous 2013Inattentive professional forecasters 2006The strategy of professional forecasting☆1999Survey Measures of Expected U.S. Inflation 2002Macroeconomic forecasts and microeconomic forecasters

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