Faculty of Economics and Business Administration Publications Database

Fundamental disagreement

Andrade, Philippe
Crump, Richard K.
Eusepi, Stefano
Volume: 83
Pages: 106 - 128
Month: October
ISSN-Print: 0304-3932
Link External Source: Online Version
Year: 2016
Keywords: Expectations; Survey forecasts; Imperfect informatio;n Term structure of disagreement

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.