Inflation Forecasting Humour
In improver to around useful technical insights, i mightiness wonder -- aren't economists supposed to hold out forecasting what volition hand off inwards the economy, together with non mining the information inwards social club to discover factoids to justify a predetermined conclusion? (I used to convey such naive thoughts, together with I imagine that I am non the solely one.)
In whatsoever event, such behavior helps explicate how the economist consensus tin create things similar systematically over-predict hereafter involvement rates. (If you lot solely read annual forecasts, together with did non pay much attending to the levels of predicted yields, you lot would believe that 2016 is the 7th twelvemonth of a bond deport market.) In improver to making a belief "rational expectations" fifty-fifty stupider than i would hold back from theory, it calls into enquiry whatsoever modelling technique that relies on consensus forecasts every bit an input. (You know that fancy affine term construction model that Fed researchers convey been using to attempt whatsoever disclose of things most the term premium? Guess what.*)
Footnote:
* "It is straightforward to include survey information inside this Kalman filter framework. The model uses monthly information on the six-month together with twelve-month-ahead forecasts of the three-month T-Bill yield from Blue Chip Financial Forecasts together with semiannual information on the average expected three-month T-Bill yield from half dozen to xi years hence, likewise from Blue Chip. In weeks where these surveys are observed, they are incorporated inwards the standard equation..." Kim together with Wright https://www.federalreserve.gov/pubs/feds/2005/200533/200533pap.pdf
(c) Brian Romanchuk 2016
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