Are Economic Forecasts Rational?

Publisher:
Federal Reserve Bank of Minneapolis
Publication Type:
Journal Article
Citation:
Federal Reserve Bank of Minneapolis Quarterly Review, 1989, 13 (2), pp. 26 - 33
Issue Date:
1989-01
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his paper discusses at an undergraduate level how forecast rationality can be tested. It explains that forecasters should correctly use any relevant information they knew in making their predictions. It shows that forecast rationality can be tested by determining whether the forecasters' prediction errors are predictable. After addressing what data and methods can be used for testing rationality, the paper presents tests of the price-forecast rationality of individual professional forecasters. Unlike results of previous studies, the test results show that those forecasters' price predictions appear to be rational.
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