Fundamental disagreement |
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| Institution: | 1. J.P. Morgan Chase, United States;2. Morgan Stanley, United States;3. Deutsche Bank Securities, Inc., United States;4. Graduate School of Business, Columbia University, United States;5. National Bureau of Economic Research, United States;6. University of Chicago Booth School of Business, United States;1. Federal Reserve Bank of New York, NY, United States;2. Federal Reserve Bank of Dallas, TX, United States;3. The University of Melbourne, Australia |
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| Abstract: | We document a novel set of facts about disagreement among professional forecasters: (1) forecasters disagree at all horizons, including the long run; (2) the term structure of disagreement is downward sloping for real output growth, relatively flat for inflation, and upward sloping for the federal funds rate; (3) disagreement is time varying at all horizons. We propose a generalized model of imperfect information that can jointly explain these facts. We further use the term structure of disagreement to show that the monetary policy rule perceived by professional forecasters features a high degree of interest-rate smoothing and time variation in the intercept. |
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| Keywords: | Expectations Survey forecasts Imperfect information Term structure of disagreement |
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