https://macropaperwarehouse.com/authors/augusto-nieto-barthaburu/Augusto Nieto-BarthaburuHugo -- gohugo.ioen-usThu, 01 Jan 2026 00:00:00 +0000https://macropaperwarehouse.com/papers/forecasting-with-feedback/Thu, 01 Jan 2026 00:00:00 +0000https://macropaperwarehouse.com/papers/forecasting-with-feedback/<p>This paper develops a strategic model of point forecast production in environments where the forecast itself influences the outcome being predicted — what the authors call &ldquo;forecasting with feedback.&rdquo; The canonical example is Federal Reserve staff (Greenbook) inflation forecasts: these forecasts guide FOMC interest rate decisions, and those rate decisions in turn affect realized inflation. The central theoretical claim, proved formally, is that even a forecaster with purely quadratic (mean-squared-error) loss will optimally produce biased forecasts in such environments, provided there is some uncertainty about how strongly the decision maker (DM) will react to the forecast. This finding offers a third interpretation of observed forecast biases — beyond the two dominant explanations in the prior literature, namely forecaster irrationality and asymmetric loss functions.</p>