Information or Institution? On the Determinants of Forecast Accuracy
AbstractThe accuracy of macroeconomic forecast depends on various factors, most importantly the mix of analytical methods used by the individual forecasters, the way that their personal experience is shaping their identification strategies, but also their efficiency in translating new information into revised forecasts. In this paper we use a broad sample of forecasts of German GDP and its components to analyze the impact of institutions and information on forecast accuracy. We find that forecast errors are a linear function of the forecast horizon, which serves as an indicator of the information available at the time a forecast is produced. This result is robust over a variety of different specifications. As better information seems to be the key to achieving better forecasts, approaches for acquiring reliable information early seem to be a good investment. By contrast, the institutional factors tend to be small and statistically insignificant. It has to remain open, whether this is the consequence of the efficiency-enhancing competition among German research institutions or rather the reflection of an abundance of forecast suppliers.
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Bibliographic InfoArticle provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.
Volume (Year): 231 (2011)
Issue (Month): 1 (February)
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Forecast accuracy; forecast revisions; forecast horizon; economic activity;
Other versions of this item:
- Roland Döhrn & Christoph M. Schmidt, 2010. "Information or Institution? – On the Determinants of Forecast Accuracy," Ruhr Economic Papers 0201, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
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