Working Paper: CEPR ID: DP16973
Authors: Nathan Goldstein; Yuriy Gorodnichenko
Abstract: We propose a model where forecasters have access to noisy signals about the future (forward information). In this setting, information varies not only across agents but also across horizons. As a result, estimated persistence of forecasts deviates from persistence of fundamentals and the ability of forecasts at shorter horizons to explain forecasts at longer horizons is limited. These properties tend to diminish as the forecast horizon increases. We document that this novel pattern is consistent with survey data for professional forecasters. We provide further evidence that time-series and cross-sectional variation in professional forecasts is driven by forward information. We propose a simple method for extracting the forward information component from survey and provide several applications of forward information.
Keywords: Expectations; Survey; Forecasts; Forward Information; News
JEL Codes: E31; C83; D84
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| availability of forward information (D84) | estimated persistence of forecasts (C53) |
| estimated persistence of forecasts (C53) | deviations from the persistence of actual fundamentals (E32) |
| adjustments by forecasters using forward information (C53) | error term correlating with forecasts (C53) |
| forecast horizon increases (C53) | influence of forward information diminishes (D83) |
| influence of forward information diminishes (D83) | convergence of estimated persistence towards actual underlying persistence of the fundamental (C51) |
| time series and cross-sectional variations in forecasts (C22) | driven by forward information (D84) |
| error term associated with forward information biases estimates (C51) | away from the true persistence parameter (C41) |
| increased persistence at longer horizons (D15) | effect size and statistical significance vary (C52) |