Lumpy Forecasts

• Authors: Javier Turen and Isaac Baley.
• BSE Working Paper: 1476 | January 25
• Keywords: consensus. , forecasting , overreaction , fixed-event forecasts , Bayesian learning , strategic concerns , forecast stability , forecast revision costs
• JEL codes: D80, D81, D83, D84, E20, E30
• consensus.
• forecasting
• overreaction
• fixed-event forecasts
• Bayesian learning
• strategic concerns
• forecast stability
• forecast revision costs

Professional forecasters adjust their inflation forecasts in a distinctly lumpy pattern, making infrequent but substantial revisions. Strategic concerns play a significant role—forecasters are more likely to adjust, and by larger amounts, when their forecasts deviate from the consensus. Using a fixed-event forecasting framework, we document the impact of lumpiness and consensus pressure on forecast adjustments. Our quantitative model, which integrates Bayesian belief updating with forecast revision costs and strategic concerns, not only replicates the observed lumpiness in survey data but also sheds light on forecasters’ apparent overreactions to new information. This structured framework enables us to “cleanse” forecasts, isolating the underlying inflation beliefs that drive these forecasts.