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.
Provider: Federal Reserve Bank of Kansas City
Part of Series: Research Working Paper
Publication Date: 1997