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ResearchPaper
2020
Testing forecast rationality for measures of central tendency
Testing forecast rationality for measures of central tendency
Abstract (English)
Rational respondents to economic surveys may report as a point forecast any measure of the central tendency of their (possibly latent) predictive distribution, for example the mean, median, mode, or any convex combination thereof. We propose tests of forecast rationality when the measure of central tendency used by the respondent is unknown. We overcome an identification problem that arises when the measures of central tendency are equal or in a local neighborhood of each other, as is the case for (exactly or nearly) symmetric distributions. As a building block, we also present novel tests for the rationality of mode forecasts. We apply our tests to survey forecasts of individual income, Greenbook forecasts of U.S. GDP, and random walk forecasts for exchange rates. We find that the Greenbook and random walk forecasts are best rationalized as mean, or near-meanforecasts, while the income survey forecasts are best rationalized as mode forecasts.
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Publication series
Hohenheim discussion papers in business, economics and social sciences; 2020,12
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Faculty
Faculty of Business, Economics and Social Sciences
Institute
Institute of Economics
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Language
English
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Classification (DDC)
330 Economics
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Free keywords
Standardized keywords (GND)
Sustainable Development Goals
BibTeX
@techreport{Schmidt2020,
url = {https://hohpublica.uni-hohenheim.de/handle/123456789/6548},
author = {Schmidt, Patrick W. and Patton, Andrew J. and Dimitriadis, Timo et al.},
title = {Testing forecast rationality for measures of central tendency},
year = {2020},
school = {Universität Hohenheim},
series = {Hohenheim discussion papers in business, economics and social sciences},
}