Forecast Rationality Tests in the Presence of Instabilities, With Applications to Federal Reserve and Survey Forecasts

Barbara Rossi and Tatevik Sekhposyan

No 11391, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper proposes a framework to implement regression-based tests of predictive ability in unstable environments, including, in particular, forecast unbiasedness and efficiency tests, commonly referred to as tests of forecast rationality. Our framework is general: it can be applied to model-based forecasts obtained either with recursive or rolling window estimation schemes, as well as to forecasts that are model-free. The proposed tests provide more evidence against forecast rationality than previously found in the Federal Reserve's Greenbook forecasts as well as survey-based private forecasts. It confirms, however, that the Federal Reserve has additional information about current and future states of the economy relative to market participants.

Keywords: Forecasting; Forecast rationality; Monetary policy; Greenbook; Survey; Real-time data (search for similar items in EconPapers)
JEL-codes: C22 C52 C53 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-for
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Citations: View citations in EconPapers (68)

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Related works:
Journal Article: Forecast Rationality Tests in the Presence of Instabilities, with Applications to Federal Reserve and Survey Forecasts (2016)
Working Paper: Forecast Rationality Tests in the Presence of Instabilities, With Applications to Federal Reserve and Survey Forecasts (2015)
Working Paper: Forecast rationality tests in the presence of instabilities, with applications to Federal Reserve and survey forecasts (2014)
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