A New Framework for Analyzing Survey Forecasts Using Three-Dimensional Panel Data
Journal of Econometrics, July 1995, vol. 68, pp. 205-227
Anthony Davies and Kajal Lahiri
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An earlier version of this paper was presented at the 1992 winter meetings of the Econometric Society, New Orleans and in a Statistics Colloquium at SUNY Albany. We thank Badi Baltagi, Roy Batchelor, Ken Froot, Masao Ogaki, Joe Sedransk, Christopher Sims, Victor Zarnowitz, and two anonymous referees for helpful comments and suggestions. We alone are responsible for any remaining errors and shortcomings.
Abstract
This paper develops a framework for analyzing forecast errors in a panel data setting. The framework provides the means (1) to test for forecast rationality when forecast errors are simultaneously correlated across individuals, across target years, and across forecast horizons using Generalized Method of Moments estimation, (2) to discriminate between forecast errors which arise from unforcastable macroeconomic shocks and forecast errors which arise from idiosyncratic errors, (3) to measure monthly aggregate shocks and their volatilities independent of data revisions and prior to the actual being realized, and (4) to test for the impact of news on volatility. We use the Blue Chip Survey of Professional Forecasts over the period July 1976 through May 1992 to implement the methodology.
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