Title: On the rationality of expert's forecasts: An empirical insight from consensus economics data
Authors: Frederique Bec - THEMA University of Cergy-Pontoise and CREST (France) [presenting]
Raouf Boucekkine - Aix-Marseille School of Economics and CNRS and EHESS (France)
Caroline Jardet - Banque de France DGEI-DCPM (France)
Abstract: A theoretical model of forecasts formation is proposed which shows that the combination of observation costs and forecast changes costs can generate optimal forecast stickiness under rational expectations hypothesis. This model main predictions are that i) forecast updates are both time- and state-dependent, and ii) when the gap between the optimal and the actual forecast crosses a threshold, the forecast update is triggered immediately and it closes the gap. Monthly Consensus Economics survey data for French and German professional forecasters inflation forecasts provide evidence of time- and state-dependence of forecast updates as well as of the threshold-type dynamics of the latter. These data also support the co-existence of both types of costs with forecast change cost lower than observation cost.