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How quickly do forecasters incorporate news? Evidence from cross-country surveys

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Author Info
Kajal Lahiri (Department of Economics, SUNY-Albany, Albany, New York, USA)
Gultekin Isiklar (Department of Economics, SUNY-Albany, Albany, New York, USA)
Prakash Loungani (International Monetary Fund, Washington D.C., USA)

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Abstract

Using forecasts from Consensus Economics Inc., we provide evidence on the efficiency of real GDP growth forecasts by testing whether forecast revisions are uncorrelated. As the forecast data used are multi-dimensional-18 countries, 24 monthly forecasts for the current and the following year and 16 target years-the panel estimation takes into account the complex structure of the variance-covariance matrix due to propagation of shocks across countries and economic linkages among them. Efficiency is rejected for all 18 countries: forecast revisions show a high degree of serial correlation. We then develop a framework for characterizing the nature of the inefficiency in forecasts. For a smaller set of countries, the G-7, we estimate a VAR model on forecast revisions. The degree of inefficiency, as manifested in the serial correlation of forecast revisions, tends to be smaller in forecasts of the USA than in forecasts for European countries. Our framework also shows that one of the sources of the inefficiency in a country's forecasts is resistance to utilizing foreign news. Thus the quality of forecasts for many of these countries can be significantly improved if forecasters pay more attention to news originating from outside their respective countries. This is particularly the case for Canadian and French forecasts, which would gain by paying greater attention than they do to news from the USA and Germany, respectively. Copyright © 2006 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 21 (2006)
Issue (Month): 6 ()
Pages: 703-725
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Handle: RePEc:jae:japmet:v:21:y:2006:i:6:p:703-725

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jan-Egbert Sturm & Timo Wollmershäuser, 2008. "The Stress of Having a Single Monetary Policy in Europe," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. David Hauner & Kornélia Krajnyák & Martin Mühleisen & Bennett Sutton & Stephan Danninger, 2005. "How Do Canadian Budget Forecasts Compare with Those of Other Industrial Countries?," IMF Working Papers 05/66, International Monetary Fund. [Downloadable!]
  3. Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2009. "Disagreement among Forecasters in G7 Countries," Macroeconomics and Finance Series 200906, Hamburg University, Department Wirtschaft und Politik. [Downloadable!]
    Other versions:
  4. Andrew J. Patton & Allan Timmermann, 2008. "The Resolution of Macroeconomic Uncertainty: Evidence from Survey Forecast," CREATES Research Papers 2008-54, School of Economics and Management, University of Aarhus. [Downloadable!]
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