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The rationality of price forecasts: a directional analysis

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  • Jordi Pons

Abstract

Tests of direction are used to evaluate the rationality and uselfulness of the price (GDP implicit deflator) forecasts made by the International Monetary Fund (IMF) for the G7 countries. Two procedures are employed to determine whether that price forecasts could be useful to users. This tests are based on Merton's (1981) and Henriksson and Merton's (1981) method for determining the conditions under which a market-timing forecast is useful to investors. The results indicate that year ahead forecasts are less good than near term forecasts, because there is no evidence that longer term price forecasts are valuable for the United States, Japan, France, Italy and Canada.

Suggested Citation

  • Jordi Pons, 2001. "The rationality of price forecasts: a directional analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 11(3), pages 287-290.
    • Handle: RePEc:taf:apfiec:v:11:y:2001:i:3:p:287-290
    DOI: 10.1080/096031001300138681
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    14. Blaskowitz, Oliver J. & Herwartz, Helmut, 2009. "On economic evaluation of directional forecasts," SFB 649 Discussion Papers 2009-052, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    15. Masahiro Ashiya, 2006. "Testing the rationality of forecast revisions made by the IMF and the OECD," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(1), pages 25-36.
    16. Sanders, Dwight R. & Manfredo, Mark R. & Boris, Keith, 2008. "Accuracy and efficiency in the U.S. Department of Energy's short-term supply forecasts," Energy Economics, Elsevier, vol. 30(3), pages 1192-1207, May.
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    18. Herman O. Stekler, 2008. "What Do We Know About G-7 Macro Forecasts?," Working Papers 2008-009, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting.
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