Do Professional Forecasters' Phillips Curves Incorporate the Beliefs of Others?

40 Pages Posted: 15 Feb 2023 Last revised: 13 Jan 2024

See all articles by Michael Clements

Michael Clements

University of Reading

Shixuan Wang

University of Reading - Department of Economics

Date Written: December 8, 2022

Abstract

We apply functional data analysis to survey expectations data, and show that functional principal component analysis combined with functional regression analysis is a fruitful way of capturing the effects of others' forecasts on a respondent's inflation forecasts. We estimate forward-looking Phillips curves on each respondent's inflation and unemployment rate forecasts, and show that for nearly a half of the respondents the forecasts of others are important. The functional principal components of the cross-sectional distributions of forecasts are shown to capture characteristics other than the mean or consensus forecast, and include forecaster disagreement.

Keywords: Inflation Forecasting, Functional Data Analysis, Survey of Professional Forecasters, Forecast Disagreement

JEL Classification: C53, E37

Suggested Citation

Clements, Michael and Wang, Shixuan, Do Professional Forecasters' Phillips Curves Incorporate the Beliefs of Others? (December 8, 2022). Available at SSRN: https://ssrn.com/abstract=4357012 or http://dx.doi.org/10.2139/ssrn.4357012

Michael Clements (Contact Author)

University of Reading ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Shixuan Wang

University of Reading - Department of Economics ( email )

Reading, RG6 6EL
United Kingdom

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