RATIONALITY AND THE ROLE OF JUDGMENT IN MACROECONOMIC FORECASTING

This paper examines the effects of judgemental adjustments on the rati onality of macroeconomic forecasts. Published forecasts based on large -scale models are rarely purely model-based, but often include extensi ve adjustments. Forecasters' adjustments tend to improve forecast accu racy, but there is no evidence of their impact on the rationality of f orecasts. Using series of revisions to forecasts we find little eviden ce that published forecasts are excessively smooth in the Nordhaus (19 87) sense, but intercept corrections do appear to reduce the variation over time in purely model-based forecasts and to alter the underlying output/inflation trade-off implicit in the model.