Judgment can spur long memory

Emilio Zanetti Chini

Journal of Economic Dynamics and Control, 2025, vol. 170, issue C

Abstract: We arrive at this conclusion by using a new family of models—the Long Memory Dynamic Judgmental Protocol (LMDJP)—where robust filtering and fractionally integrated auto-regressions are combined in an environment characterized by several players—namely, Forecast Producer, Forecast User, and Reality. Namely, we show that if judgment is parametrized as a deformation Likelihood function according to Lq-Likelihood methods, such a deformation affects (sometimes dramatically) the Power Spectrum, consequently inducing over-rejection in formal tests for no LM-effects based on the last. Our simulated and empirical evidence reveals that knowledge of the fractional integration parameter matters for the p-values of tests for spurious LM and, secondly, that the role of LM in belief formation is ambiguous.

Keywords: Belief formation; Dynamic systems; Power spectrum; Filtering (search for similar items in EconPapers)
JEL-codes: C12 C22 C44 C53 E17 E3 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:170:y:2025:i:c:s0165188924001970

DOI: 10.1016/j.jedc.2024.105005

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