DP16973 Expectations Formation and Forward Information

Author(s):	Nathan Goldstein, Yuriy Gorodnichenko
Publication Date:	January 2022
Date Revised:	January 2022
Keyword(s):	Expectations, forward information, News, Survey Forecasts
JEL(s):	C83, D84, E31
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=16973

We propose a model where forecasters have access to noisy signals about the future (forward information). In this setting, information varies not only across agents but also across horizons. As a result, estimated persistence of forecasts deviates from persistence of fundamentals and the ability of forecasts at shorter horizons to explain forecasts at longer horizons is limited. These properties tend to diminish as the forecast horizon increases. We document that this novel pattern is consistent with survey data for professional forecasters. We provide further evidence that time-series and cross-sectional variation in professional forecasts is driven by forward information. We propose a simple method for extracting the forward information component from survey and provide several applications of forward information.