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Over-reaction in Macroeconomic Expectations / Pedro Bordalo, Nicola Gennaioli, Yueran Ma, Andrei Shleifer.
- Format:
- Book
- Author/Creator:
- Bordalo, Pedro.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w24932.
- NBER working paper series no. w24932
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2018.
- Summary:
- We study the rationality of individual and consensus professional forecasts of macroeconomic and financial variables using the methodology of Coibion and Gorodnichenko (2015), which examines predictability of forecast errors from forecast revisions. We report two key findings: forecasters typically over-react to their individual news, while consensus forecasts under-react to average forecaster news. To reconcile these findings, we combine the diagnostic expectations model of belief formation from Bordalo, Gennaioli, and Shleifer (2018) with Woodford's (2003) noisy information model of belief dispersion. The forward looking nature of diagnostic expectations yields additional implications, which we also test and confirm. A structural estimation exercise indicates that our model captures important variation in the data, yielding a value for the belief distortion parameter similar to estimates obtained in other settings
- Notes:
- Print version record
- August 2018.
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