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The behavior of uncertainty and disagreement and their roles in economic prediction: a panel analysis
This paper examines point and density forecasts from the European Central Bank?s Survey of Professional Forecasters. We derive individual uncertainty measures along with individual point- and density-based measures of disagreement. We also explore the relationship between uncertainty and disagreement, as well as their roles in respondents? forecast performance and forecast revisions. We observe substantial heterogeneity in respondents? uncertainty and disagreement. In addition, there is little co-movement between uncertainty and disagreement, and forecast performance shows a more robust ...
Working Paper
The Fed's Asymmetric Forecast Errors
I show that the probability that the Board of Governors of the Federal Reserve System staff's forecasts (the "Greenbooks'") overpredicted quarterly real gross domestic product (GDP) growth depends on both the forecast horizon and also whether the forecasted quarter was above or below trend real GDP growth. For forecasted quarters that grew below trend, Greenbooks were much more likely to overpredict real GDP growth, with one-quarter ahead forecasts overpredicting real GDP growth more than 75% of the time, and this rate of overprediction was higher for further ahead forecasts. For forecasted ...
Working Paper
Looking Inside the Magic 8 Ball : An Analysis of Sales Forecasts using Italian Firm-Level Data
This paper explores firm forecasting strategies. Using Italian data, we focus on two aspects of the forecasting process: how firms forecast sales and how accurate their predictions are. We relate both outcomes to current conditions, firm experience, global factors, and other firm characteristics. We find that current conditions tend to explain most of the variability in the sales forecast. While past projection errors tend to account for cross-firm differences in models of expectation formation, they are a key explanatory variable in models of forecast accuracy. Among other controls, firm ...
Working Paper
All Forecasters Are Not the Same: Time-Varying Predictive Ability across Forecast Environments
This paper examines data from the European Central Bank’s Survey of Professional Forecasters to investigate whether participants display equal predictive performance. We use panel data models to evaluate point- and density-based forecasts of real GDP growth, inflation, and unemployment. The results document systematic differences in participants’ forecast accuracy that are not time invariant, but instead vary with the difficulty of the forecasting environment. Specifically, we find that some participants display higher relative accuracy in tranquil environments, while others display ...
Working Paper
The Accuracy of Forecasts Prepared for the Federal Open Market Committee
We analyze forecasts of consumption, nonresidential investment, residential investment, government spending, exports, imports, inventories, gross domestic product, inflation, and unemployment prepared by the staff of the Board of Governors of the Federal Reserve System for meetings of the Federal Open Market Committee from 1997 to 2008, called the Greenbooks. We compare the root mean squared error, mean absolute error, and the proportion of directional errors of Greenbook forecasts of these macroeconomic indicators to the errors from three forecasting benchmarks: a random walk, a first-order ...