Copycats and Common Swings: The Impact of the Use of Forecasts in Information Sets

This paper presents evidence, using data from Consensus Forecasts, that there is an "attraction" to conform to the mean forecasts; in other words, views expressed by other forecasters in the previous period influence individuals' current forecast. The paper then discusses--and provides further evidence on--two important implications of this finding. The first is that the forecasting performance of these groups may be severely affected by the detected imitation behavior and lead to convergence to a value that is not the "right" target. Second, since the forecasts are not independent, the common practice of using the standard deviation from the forecasts' distribution, as if they were standard errors of the estimated mean, is not warranted. Copyright 2002, International Monetary Fund