Document Type

Honors Project - Open Access

Comments

Adam's paper won First Place in the Senior Thesis category at the Minnesota Economic Association meeting in October of 2012. His advisor was Pete Ferderer.

Abstract

I examine the herding behavior of macroeconomic forecasters for real GDP growth and unemployment rate forecasts. Although previous research has addressed cross-sectional differences in the propensity to herd, this paper explores changes in herding behavior over time. I present two theories. The first, based on Prospect Theory, predicts that a forecaster’s propensity to herd is inversely related to the size of his recent forecast error. The second theory predicts that the propensity to herd decreases when other forecasters make larger errors. The results reveal significant herding behavior and support for both theories. Implications for consumers of macroforecasts are addressed.

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