Working Paper: NBER ID: w29711
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, the estimated persistence of forecasts deviates from the 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 are driven by forward information. We propose a simple method for extracting the forward information component from a survey and provide several applications of forward information.
Keywords: Expectations formation; Forward information; Forecasting; Macroeconomic projections
JEL Codes: C83; D84; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| forward information (D83) | persistence of forecasts (C53) |
| forward information (D83) | forecast accuracy (C53) |
| shorter horizon forecasts (G17) | longer horizon forecasts (Q47) |
| adjustment of predictions to incorporate forward information (C53) | error term correlated with forecasts (C53) |
| forecast horizon increase (C53) | diminishment of adjustment (F32) |