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How Do We Learn About the Long Run?

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Abstract

Using a novel and unique panel dataset of individual-level professional forecasts at short, medium, and very-long horizons, we provide new stylized facts about survey forecasts. We present direct evidence that forecasters use multivariate models in an environment with imperfect information about the current state, leading to heterogenous non-stationary expectations about the long run. We show forecast revisions are consistent with the predictions of a multivariate unobserved trend and cycle model. Our results suggest models of expectations formation which are either univariate, stationary, or both, are inherently misspecified and that macroeconomic modelling should reconsider the conventional assumption that agents operate in a well-understood stationary environment.

Suggested Citation

  • Richard K. Crump & Stefano Eusepi & Emanuel Moench & Bruce Preston, 2025. "How Do We Learn About the Long Run?," Staff Reports 1150, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:99868
    DOI: 10.59576/sr.1150
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    More about this item

    Keywords

    expectations formation; shifting endpoint models; imperfect information; survey forecasts;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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