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Strategic judgment: its game-theoretic foundations,its econometric elicitation

Emilio Zanetti Chini ()

No 190, Working Papers from University of Rome La Sapienza, Department of Public Economics

Abstract: We provide a new frequentist methodology that detects forecasting bias due to strategic interaction. This is based on a new environment, named "Scoring Structure", where a Forecast User interacts with a Forecast Producer and Reality. A formal test for the null hypothesis of linearity in Scoring Structure is introduced. Linearity implies that forecasts are strategically coherent with evaluations and vice-versa. The new test has good small-sample properties and behaves consistently with theoretical requirements. We illustrate the use of the Scoring Structure and the coherence test via two case studies on the assessment of the probability of recessions for the U.S. economy and the evaluation of Norges Bank’s Fan Charts of Output Gap. These support the endemic nature of the strategic judgment in Macroeconomics. Finally, we discuss the economic interpretation of the results obtained by our approach.

Keywords: Business Cycle; Predictive Density; Forecast Evaluation; Coherence Testing; Scoring Rules and Structures (search for similar items in EconPapers)
JEL-codes: C12 C22 C44 C53 (search for similar items in EconPapers)
Pages: 55
Date: 2019-10
New Economics Papers: this item is included in nep-ecm and nep-ore
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