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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BER Weekly

17 February 2020
Last Thursday, President Ramaphosa delivered his State of the Nation address (Sona) to parliament. The statement gave recognition to the economic challenges SA currently face, especially regarding electricity supply. More emphasis was placed on the role of the private sector to help solve these challenges. Read more in the Current affairs section. On...

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