Inflation Forecasts and Forecaster Herding: Evidence from South African Survey Data

Stellenbosch Working Paper Series No. WP21/2014
 
Publication date: 2014
 
Author(s):
[protected email address] (Department of Economics, Helmut-Schmidt-University)
[protected email address] (Department of Economics, University of Stellenbosch)
[protected email address] (Department of Economics, University of Pretoria)
 
Abstract:

We use South African survey data to study whether short-term inflation forecasts are unbiased. Depending on how we model a forecaster’s information set, we find that forecasts are biased due to forecaster herding. Evidence of forecaster herding is strong when we assume that the information set contains no information on the contemporaneous forecasts of others. When we randomly allocate forecasters into a group of early forecasters who can only observe the past forecasts of others and late forecasters who can observe the contemporaneous forecasters of their predecessors, then evidence of forecaster herding weakens. Further, evidence of forecaster herding is strong and significant in times of high inflation volatility. In time of low inflation volatility, in contrast, forecaster anti-herding seems to dominate

 
JEL Classification:

C53, D82, E37

Keywords:

inflation rate, forecasting, forecaster herding

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26 January 2024
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BER Weekly

26 January 2024
Domestically, the theme of the week centred around monetary policy and inflation, with the SA Reserve Bank (SARB) making its first repo rate decision of the year on Thursday. Furthermore, Stats SA released both consumer and producer price inflation data for December. Globally, monetary policy was also important, with the European Central Bank (ECB),...

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