Exploiting Heterogeneity in the Survey of Professional Forecasters

Tae-Hwy Lee () and Saerom Lee ()
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Tae-Hwy Lee: Department of Economics, University of California Riverside
Saerom Lee: University of California, Riverside

No 202602, Working Papers from University of California at Riverside, Department of Economics

Abstract: The mean response in the Survey of Professional Forecasters (SPF) is widely used to summarize individual forecasts. In this paper, we propose a novel summary forecast that enhances the predictive power of the mean response by selectively incorporating idiosyncratic signals. Our framework is motivated by the observation that while individual forecasts are highly correlated—suggesting a factor structure—they also exhibit significant heterogeneity. We treat the mean response as the primary common factor and define heterogeneity as the idiosyncratic component of each individual forecast after accounting for this commonality. Employing a factor-adjusted regularized framework, we integrate informative idiosyncratic components to improve the mean response. Using SPF data from the Federal Reserve Bank of Philadelphia and the European Central Bank, we show that incorporating these idiosyncratic components leads to significant predictive gains over the mean response.

Keywords: mean response; heterogeneity; common components; idiosyncratic components (search for similar items in EconPapers)
JEL-codes: C22 C32 (search for similar items in EconPapers)
Pages: 18 Pages
Date: 2026-04
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