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Performance of Survey Forecasts by Professional Analysts: Did the European Debt Crisis Make it Harder or Perhaps Even Easier?

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  • Frederik Kunze

    ()
    (Analyst/Economist, NORD/LB Norddeutsche Landesbank, Friedrichswall 10, Hannover 30159, Germany)

  • Mario Gruppe

    ()
    (Analyst/Economist, NORD/LB Norddeutsche Landesbank, Friedrichswall 10, Hannover 30159, Germany)

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    Abstract

    As the future movements of financial time series like the European Central Bank’s benchmark rate are exposed to uncertainty, financial market participants regularly have to rely on professional analysts’ forecasts. Not surprisingly—and for decades already—the quality of survey forecasts has been evaluated, with heterogeneous results. In addition, forecasters’ performance can change through the course of time. This may happen not only due to wrong or inadequate underlying models. Especially in times of financial turmoil or monetary crisis—like the European debt crisis—the interest rate moves made by central bankers may become even harder to predict (at least the direct reaction to the crisis). Because of this, we evaluate the performance of survey forecasts for the three months rate in the Euro zone performed by financial professionals and test for structural breaks to evidence for crisis related changes and the corresponding forecast errors.

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    Bibliographic Info

    Article provided by MDPI, Open Access Journal in its journal Social Sciences.

    Volume (Year): 3 (2014)
    Issue (Month): 1 (February)
    Pages: 128-139

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    Handle: RePEc:gam:jscscx:v:3:y:2014:i:1:p:128-139:d:33261

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    Related research

    Keywords: survey forecast; short-term interest rates; ECB; monetary policy; financial crisis; forecast evaluation;

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    1. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-01, C.V. Starr Center for Applied Economics, New York University.
    2. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, Econometric Society, vol. 61(4), pages 821-56, July.
    3. Ansgar Belke & Jens Klose, 2011. "Does the ECB Rely on a Taylor Rule During the Financial Crisis? Comparing Ex-post and Real Time Data with Real Time Forecasts," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(2), pages 147-171, September.
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    11. Chortareas, Georgios & Jitmaneeroj, Boonlert & Wood, Andrew, 2012. "Forecast rationality and monetary policy frameworks: Evidence from UK interest rate forecasts," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 209-231.
    12. Friedman, Benjamin M., 1980. "Survey evidence on the `rationality' of interest rate expectations," Journal of Monetary Economics, Elsevier, vol. 6(4), pages 453-465, October.
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