On the internal consistency of the term structure of forecasts of housing starts

We use the term structure of forecasts of housing starts to test for rationality of forecasts. Our test is based on the idea that short-term and long-term forecasts should be internally consistent. We test the internal consistency of forecasts using data for Australia, Canada, Japan and the United States. Using a simple model of forecast formation, we find that forecasts are not internally consistent, leading to a rejection of forecast rationality.