Augmented Information Rigidity Test

35 Pages Posted: 18 Nov 2021

See all articles by Tucker McElroy

Tucker McElroy

U.S. Census Bureau - Center for Statistical Research and Methodology

Xuguang Simon Sheng

American University - Department of Economics

Date Written: November 15, 2021

Abstract


The information rigidity test examines predictability of forecast errors from forecast revisions. This paper provides an augmented information rigidity test that controls for cross-sectional and time series correlations in panel data. Our Monte Carlo simulations show that the proposed tests have satisfactory size and power properties in typical macro panels. Applications of the tests to the U.S. Survey of Professional Forecasters covering 1968Q4 through 2016Q4 clearly reveal experts' overreaction to news in their macroeconomic expectations.

Keywords: Forecast evaluation, information rigidity, overreaction, panel data, Survey of Professional Forecasters

JEL Classification: C23, C53, E37

Suggested Citation

McElroy, Tucker and Sheng, Xuguang Simon, Augmented Information Rigidity Test (November 15, 2021). Available at SSRN: https://ssrn.com/abstract=3964004 or http://dx.doi.org/10.2139/ssrn.3964004

Tucker McElroy

U.S. Census Bureau - Center for Statistical Research and Methodology ( email )

4600 Silver Hill Road
Washington, DC 20233-9100
United States

Xuguang Simon Sheng (Contact Author)

American University - Department of Economics ( email )

4400 Massachusetts Avenue, N.W.
Washington, DC 20016-8029
United States

HOME PAGE: http://https://www.american.edu/cas/faculty/sheng.cfm

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