Pami Dua

Blue Chip Rationality Tests

This paper tests the rationality of forecasts made by individuals who contribute to the Blue Chip consensus forecasting service and tries, by means of a questionnaire on forecasting methods, to establish why some forecasters appear more rational than others. Tests based on consensus forecasts prove unreliable as guides to the number of individuals who produce rational forecasts. Individual forecasts are more likely to be rational if they are based on a mainstream economic theory and incorporate a substantial element of judgment. Copyright 1991 by Ohio State University Press.

Improving macro-economic forecasts: The role of consumer confidence

Abstract The failure of economic forecasters to predict the most recent US recession has renewed interest in the idea of supplementing model-based forecasts with information from other, more qualitative, indicators. This paper tests whether one such variable, the consumer confidence index, could have improved these forecasts; and whether improvements are greatest for forecasts generated by econometric models with little judgmental adjustment. We find that consumer confidence would have been helpful in predicting the 1991 recession. But the result does not generalize to other years, and appears to reflect the special nature of the recession rather than a persistent weakness in forecasting technique.

Using Leading Indicators to Forecast U.S. Home Sales in a Bayesian Vector Autoregressive Framework

This article uses Bayesian vector autoregressive models to examine the usefulness of leading indicators in predicting U.S. home sales. The benchmark Bayesian model includes home sales, price of homes, mortgage rate, real personal disposable income, and unemployment rate. We evaluate the forecasting performance of six alternative leading indicators by adding each, in turn, to the benchmark model. Out-of-sample forecast performance over three periods shows that the model that includes building permits authorized consistently produces the most accurate forecasts. Thus, the intention to build in the future provides good information with which to predict U.S. home sales. Another finding suggests that leading indicators with longer leads outperform the short-leading indicators.

Forecaster ideology, forecasting technique, and the accuracy of economic forecasts

Abstract This paper uses a survey of US economic forecasters to assess the impact of their theories and forecasting methods on the accuracy of their predictions for a number of macroeconomic variables. Forecasters who give more weight to Keynesian ideology and econometric modelling dominate predominantly atheoretical times series forecasters for most variables. Although Keynesianism is the most popular ideology in practice, most forecasters place more weight on judgment than on any formal modelling technique.

Empirical measures of inflation uncertainty: a cautionary note

A direct, ex ante, measure of inflation uncertainty in the US is compared with a number of proxies used in empirical studies. The direct estimate is the root mean subjective variance of the probability distributions for inflation reported by respondents to the ASA/NBER survey. The proxies include forecast standard deviations from ARIMA, ARCH and structural models of inflation. These proxies are not significantly correlated with the direct measure, nor with one another. Use of the proxies leads to incorrect inferences about the correlation between inflation and inflation uncertainty, and between inflation uncertainty and the real interest rate.

Product differentiation in the economic forecasting industry

Abstract This paper tests whether economic forecasters differentiate their products, either by making forecasts which are consistently more optimistic or pessimistic than the industry average, or by developing comparative advantages in forecasting some variables at the expense of others. Application of nonpara-metric tests to the track records of 19 U.S. forecasters shows that the first strategy is followed, but not the second. These results imply that many forecasters may have found it optimal to produce forecasts which are technically irrational.

Interest rate determination in India: domestic and external factors ☆

Abstract This paper examines the determinants of interest rates in India in the post-reform period in the context of a model that takes into account both domestic and external factors. The short- and long-run behavior of interest rates (commercial paper rate, 3-month Treasury bill rate, 12-month Treasury bill rate) is studied. The empirical results are robust across interest rates and indicate the existence of a cointegrating relationship between real interest rates, real government expenditure, real money supply, foreign interest rates and the forward premium. The estimations also show that movements in interest rates are Granger caused by both domestic and external factors.

Survey Expectations in the Time Series Consumption Function

This paper introduces survey-based measures of expectations and uncertainties about income and real interest rates into an otherwise conventional consumption function. The survey dat a contribute more than conventional variables to the explanation of changes in consumption. The hypothesis that consumption follows a random walk is rejected in favor of a model in which consumption responds with a lag to changes in expected income growth. The significance of inflation in earlier estimates of the U.S. consumpti on function is shown to be spurious and due to a strong negative correlation between expected inflation and expected income growth. Copyright 1992 by MIT Press.

Forecasting Connecticut Home Sales in a BVAR Framework Using Coincident and Leading Indexes

We develop a Bayesian Vector Autoregressive Model (BVAR) to forecast home sales in Connecticut. In addition to home prices and mortgage interest rates, we also include measures of current and future economic conditions to see if these variables provide useful information with which to forecast Connecticut home sales. The best performing model incorporates recently developed coincident and leading employment indexes for Connecticut. These composite indexes perform markedly better than the inclusion of individual variables such as the unemployment rate or housing permits authorized.

Household versus Economist Forecasts of Inflation: A Reassessment: A Note

In a recent article in this Journal} Gramlich (1983) concluded that the mean inflation forecasts from the University of Michigan Survey Research Center (SRC) surveys of households were, in the years 1956-1980, more accurate and more rational than the mean inflation forecasts from Livingstons Philadelphia Inquirer surveys of professional economists. These paradoxical Elndings have proved robust with respect to improvements in testing procedures (Bryan and Gavin 1986a, 1 986b). The purpose of this note is not to cast doubt on the result themselves, but to urge caution in their interpretation. With respect to forecast accuracy, we show that while the average forecast from the SRC is indeed more accurate than the average forecast from the Livingston survey, the forecast of a typical household is much less accurate than that of a typical economist. The apparent superiority of the SRC survey is entirely due to its larger