Working Paper

Moving endpoints and the internal consistency of agents' ex ante forecasts

Abstract: Forecasts by rational agents contain embedded initial and terminal boundary conditions. Standard time series models generate two types of long-run \"endpoints\"---fixed endpoints and moving average endpoints. Neither can explain the shifting endpoints implied by postwar movements in the cross-section of forward rate forecasts in the term structure or by post-1979 changes in survey estimates of expected inflation. Multiperiod forecasts by a broader class of \"moving endpoint\" time series models provide substantially improved tracking of the historical term structure and generally support the internal consistency of the ex ante long-run expectations of bond traders and survey respondents.

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 1996

Number: 96-47