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Assessing the Evidence of Macro-Forecaster Herding: Forecasts of Inflation and Output Growth

We consider a number of ways of testing whether macroeconomic forecasters herd or anti-herd, i.e., whether they shade their forecasts towards those of others or purposefully exaggerate their differences. When applied to survey respondents' expectations of inflation and output growth the tests indicate conflicting behaviour. We show that this can be explained in terms of a simple model in which differences between forecasters are primarily due to idiosyncratic factors or reporting errors rather than imitative behaviour. Models of forecaster heterogeneity that stress informational rigidities will also falsely indicate imitative behaviour.

Published on 1st October 2014
Authors Professor Michael Clements
Series Reference ICM-2014-12