Working Paper: NBER ID: w14586
Authors: Olivier Coibion; Yuriy Gorodnichenko
Abstract: This paper uses three different surveys of economic forecasts to assess both the support for and the properties of informational rigidities faced by agents. Specifically, we track the impulse responses of mean forecast errors and disagreement among agents after exogenous structural shocks. Our key contribution is to document that in response to structural shocks, mean forecasts fail to completely adjust on impact, leading to statistically and economically significant deviations from the null of full information: the half life of forecast errors is roughly between 6 months and a year. Importantly, the dynamic process followed by forecast errors following structural shocks is consistent with the predictions of models of informational rigidities. We interpret this finding as providing support for the recent expansion of research into models of informational rigidities. In addition, we document several stylized facts about the conditional responses of forecast errors and disagreement among agents that can be used to differentiate between some of the models of informational rigidities recently proposed.
Keywords: informational rigidities; forecast errors; expectations formation; structural shocks
JEL Codes: D84; E3; E4; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Structural shocks (E32) | Forecast errors (C53) |
| Forecast errors (C53) | Mean forecasts (C53) |
| Half-life of forecast errors (C22) | Adjustment process (F32) |
| Structural shocks (E32) | Disagreement among agents (D80) |
| Oil price shocks (Q43) | Consumer disagreement (D16) |