title: The role of stickiness, extrapolation and past  consensus forecasts in macroeconomic expectations
creator: Hagenhoff, Tim
creator: Lustenhouwer, Joep
subject: 330
subject: 330 Economics
description: We propose a simple model of expectation formation with three distinct deviations from fully rational expectations. In particular, forecasters’ expectations are sticky, extrapolate the most recent news about the current period, and depend on the lagged consensus forecast about the period being forecast. We find that all three biases are present in the Survey of  Professional Forecaster as well as in the Livingston Survey, and that their magnitudes depend on the forecasting horizon. Moreover, in an over-identified econometric specification, we find that the restriction on coefficients implied by our model is always close to being satisfied and in most cases not rejected. We also stress the point that using the past consensus forecast  to form expectations is a rather smart thing to do if cognitive limitations and biases cause any attempt to build an own rational forecast to fail.
date: 2020-07
type: Working paper
type: info:eu-repo/semantics/workingPaper
type: NonPeerReviewed
format: application/pdf
identifier: https://archiv.ub.uni-heidelberg.de/volltextserverhttps://archiv.ub.uni-heidelberg.de/volltextserver/28722/1/Hagenhoff_Lustenhouwer_2020_dp686.pdf
identifier: DOI:10.11588/heidok.00028722
identifier: urn:nbn:de:bsz:16-heidok-287229
identifier:   Hagenhoff, Tim ; Lustenhouwer, Joep  (2020) The role of stickiness, extrapolation and past consensus forecasts in macroeconomic expectations.  [Working paper]     
relation: https://archiv.ub.uni-heidelberg.de/volltextserver/28722/
rights: info:eu-repo/semantics/openAccess
rights: http://archiv.ub.uni-heidelberg.de/volltextserver/help/license_urhg.html
language: eng