Working Paper

Forecast Performance in Times of Terrorism


Abstract: Governments, central banks and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, a factor that should be considered by decision-makers. We focus on terrorism as a mostly endogenously driven form of political uncertainty and assess the forecasting performance of market-based and professional inflation and exchange rate forecasts in Israel. We show that expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, the performance of both market-based and expert forecasts is significantly worse during such periods. Thus, policymakers should be particularly attentive to terrorism when considering inflation and exchange rate forecasts.

Keywords: market forecast; terrorism; exchange rate; expert forecast; inflation; forecast performance;

JEL Classification: C53; F51; E37; F37;

https://doi.org/10.24149/gwp390

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Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2020-06-26

Number: 390

Pages: 39