Lumpy Forecasts

Isaac Baley and Javier Turen

No 19824, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Professional forecasters adjust their inflation forecasts in a distinctly lumpy pattern, making infrequent but substantial revisions. Strategic concerns play a significant role---forecasters are more likely to adjust, and by larger amounts, when their forecasts deviate from the consensus. Using a fixed-event forecasting framework, we document the impact of lumpiness and consensus pressure on forecast adjustments. Our quantitative model, which integrates Bayesian belief updating with forecast revision costs and strategic concerns, not only replicates the observed lumpiness in survey data but also sheds light on forecasters' apparent overreactions to new information. This structured framework enables us to "cleanse" forecasts, isolating the underlying inflation beliefs that drive these forecasts.

Keywords: Survey of professional forecasters; overreaction; Lumpy adjustment; Inflation expectations; Consensus; Strategic complementarity (search for similar items in EconPapers)
JEL-codes: D80 D81 D83 D84 E20 E30 (search for similar items in EconPapers)
Date: 2025-01
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