Abstract
This paper tests a version of the rational expectations hypothesis using ‘fixed-event’ inflation forecasts for the UK. Fixed-event forecasts consist of a panel of forecasts for a set of outturns of a series at varying horizons prior to each outturn. The forecasts are the prediction of fund managers surveyed by Merrill Lynch. Fixed-event forecasts allow tests for whether expectations are unbiased in a similar fashion to the rest of the literature. But they also permit the conduct of particular tests of forecast efficiency - whether the forecasts make best use of available information - that are not possible with rolling-event data. We find evidence of a positive bias in inflation expectations. Evidence for inefficiency is much less clear cut.
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First version received: June 2002/ Final version received: November 2003
We would like two anonymous referees and an editor for comments that have significantly improved the paper. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of England.
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Bakhshi, H., Kapetanios, G. & Yates, T. Rational expectations and fixed-event forecasts: An application to UK inflation. Empirical Economics 30, 539–553 (2005). https://doi.org/10.1007/s00181-005-0262-8
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DOI: https://doi.org/10.1007/s00181-005-0262-8