Diligent forecasters can make accurate predictions despite disagreeing with the consensus

Zidong An and Xinye Zheng

Economic Modelling, 2023, vol. 125, issue C

Abstract: We follow the sticky information framework and derive two novel model implications that both ex-ante forecast disagreement and ex-post forecast accuracy are associated with the degree of information stickiness at an individual level. Using micro-level forecast data from the G7 countries, we show that professional forecasters are persistently heterogeneous. More importantly, we find supportive evidence that forecast accuracy is negatively associated with information stickiness, while forecast disagreement increases at a slowing rate as individual information stickiness increases. The relationship between forecast disagreement and individual information stickiness is also affected by the degree of average information stickiness and the persistence of target macroeconomic variables. This paper contributes to the literature by providing theoretical linkages between the heterogeneous expectation formation process and information stickiness at an individual level.

Keywords: Expectation formation; Information stickiness; Forecast disagreement; Forecast accuracy; Survey data (search for similar items in EconPapers)
JEL-codes: D84 E37 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:125:y:2023:i:c:s0264999323001840

DOI: 10.1016/j.econmod.2023.106372

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