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The Curse Of Irving Fisher (professional Forecasters' Version)

Author

Listed:
  • James Yetman

    (Bank for International Settlements)

  • Gregor W. Smith

Abstract

Dynamic Euler equations restrict multivariate forecasts.Thus a range of links between macroeconomic variables can bestudied by seeing whether they hold within the multivariatepredictions of professional forecasters. We illustrate this novelway of testing theory by studying the links between forecasts ofU.S. nominal interest rates, inflation, and real consumptiongrowth since 1981. By using forecast data for both returnsand macroeconomic fundamentals, we use the complete cross-sectionof forecasts, rather than the median. The Survey ofProfessional Forecasters yields a three-dimensional panel, acrossquarters, forecasters, and forecast horizons. This approach yields14727 observations, much greater than the 107 time seriesobservations. The resulting precision reveals a significant,negative relationship between consumption growth and interestrates.

Suggested Citation

  • James Yetman & Gregor W. Smith, 2007. "The Curse Of Irving Fisher (professional Forecasters' Version)," Working Paper 1144, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1144
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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1144.pdf
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    References listed on IDEAS

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    Cited by:

    1. Devereux, Michael B. & Smith, Gregor W. & Yetman, James, 2012. "Consumption and real exchange rates in professional forecasts," Journal of International Economics, Elsevier, vol. 86(1), pages 33-42.

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    More about this item

    Keywords

    forecast survey; asset pricing; Fisher effect;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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