Are Professional Forecasters Bayesian?
53 Pages Posted: 22 May 2014 Last revised: 26 May 2016
Date Written: May 16, 2014
I evaluate whether expectations of professional forecasters are consistent with the property of Bayesian learning that the expected uncertainty of a fixed target forecast should decline with the horizon. I obtain a measure of individual uncertainty from the density forecasts of the Survey of Professional Forecasters (SPF) and the ECB-SPF and use it to test the prediction of the learning model. Empirically, I find that the prediction is often violated, in particular when forecasters experience unexpected news in the most recent data release, and following quarters in which they produce narrow forecasts. In addition, I find significant heterogeneity in the updating behavior of forecasters in response to changes in these variables.
Keywords: Bayesian learning, density forecasts, Survey of Professional Forecasters
JEL Classification: E17, E37
Suggested Citation: Suggested Citation