Advanced Search
MyIDEAS: Login to save this paper or follow this series

Forecaster Behaviour and Bias in Macroeconomic Forecasts

Contents:

Author Info

  • Roy Batchelor

Abstract

This paper documents the presence of systematic bias in the real GDP and inflation forecasts of private sector forecasters in the G7 economies in the years 1990–2005. The data come from the monthly Consensus Economics forecasting service, and bias is measured and tested for significance using parametric fixed effect panel regressions and nonparametric tests on accuracy ranks. We examine patterns across countries and forecasters to establish whether the bias reflects the inefficient use of information, or whether it reflects a rational response to financial, reputational and other incentives operating for forecasters. In several G7 countries – Japan, Italy, Germany and France – there is evidence of a change in the trend growth rate. In these circumstances, standard tests for rationality are inappropriate, and a bias towards optimism in the consensus forecast is inevitable as rational forecasters learn about the new trend. In all countries there is evidence that individual forecasters converge on the consensus forecast too slowly. However, the persistent optimism of some forecasters, and the persistent pessimism of others, is not consistent with the predictions of models of “rational bias” that have become popular in the finance and economics literature.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-Ifo_Working_Papers/wp-ifo-2005-2010/IfoWorkingPaper-39.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Paper No. 39.

as in new window
Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:ces:ifowps:_39

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Email:
Web page: http://www.cesifo-group.de
More information through EDIRC

Related research

Keywords: Macroeconomic forecasts; judgemental forecasting; bias;

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Lamont, Owen A., 2002. "Macroeconomic forecasts and microeconomic forecasters," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 48(3), pages 265-280, July.
  2. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 21-40, February.
  3. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias In Macroeconomic Forecasts," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 293-318, February.
  4. Batchelor, Roy & Dua, Pami, 1991. "Blue Chip Rationality Tests," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 23(4), pages 692-705, November.
  5. David Hendry & Michael P. Clements, 2001. "Economic Forecasting: Some Lessons from Recent Research," Economics Series Working Papers, University of Oxford, Department of Economics 78, University of Oxford, Department of Economics.
  6. Ottaviani, Marco & Sorensen, Peter Norman, 2006. "The strategy of professional forecasting," Journal of Financial Economics, Elsevier, Elsevier, vol. 81(2), pages 441-466, August.
  7. Roy Batchelor, 2001. "How useful are the forecasts of intergovernmental agencies? The IMF and OECD versus the consensus," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 33(2), pages 225-235.
  8. Estrin, Saul & Holmes, Peter, 1990. "Indicative planning in developed economies," Journal of Comparative Economics, Elsevier, vol. 14(4), pages 531-554, December.
  9. Michel Beine & Agnès Bénassy-Quéré & Hélène Colas, 2003. "Imitation Amongst Exchange-Rate Forecasters: Evidence from Survey Data," THEMA Working Papers, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise 2003-39, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  10. Prakash Loungani & Bharat Trehan, 2002. "Predicting when the economy will turn," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue mar15.
  11. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 21(47), pages 491-534, 07.
  12. Harrison Hong & Jeffrey D. Kubik, 2003. "Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts," Journal of Finance, American Finance Association, American Finance Association, vol. 58(1), pages 313-351, 02.
  13. Macdonald, Ronald & Marsh, Ian W., 1996. "Currency forecasters are heterogeneous: confirmation and consequences," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(5), pages 665-685, October.
  14. Sushil Bikhchandani & Sunil Sharma, 2001. "Herd Behavior in Financial Markets," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 1.
  15. Friedrich Heinemann, 2006. "Planning or Propaganda? An Evaluation of Germany's Medium-term Budgetary Planning," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 62(4), pages 551-578, December.
  16. Ashiya, M. & Doi, T., 1999. "Herd Behavior of Japanese Economists," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0479, Institute of Social and Economic Research, Osaka University.
  17. Terence Lim, 2001. "Rationality and Analysts' Forecast Bias," Journal of Finance, American Finance Association, American Finance Association, vol. 56(1), pages 369-385, 02.
  18. Batchelor, Roy A. & Dua, Pami, 1990. "Product differentiation in the economic forecasting industry," International Journal of Forecasting, Elsevier, Elsevier, vol. 6(3), pages 311-316, October.
  19. Tom Stark, 1997. "Macroeconomic forecasts and microeconomic forecasters in the Survey of Professional Forecasters," Working Papers 97-10, Federal Reserve Bank of Philadelphia.
  20. Ashiya, Masahiro, 2006. "Forecast accuracy and product differentiation of Japanese Institutional Forecasters," International Journal of Forecasting, Elsevier, Elsevier, vol. 22(2), pages 395-401.
  21. Isiklar, Gultekin & Lahiri, Kajal, 2007. "How far ahead can we forecast? Evidence from cross-country surveys," International Journal of Forecasting, Elsevier, Elsevier, vol. 23(2), pages 167-187.
  22. Francis, Jennifer & Douglas Hanna, J. & Philbrick, Donna R., 1997. "Management communications with securities analysts," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 24(3), pages 363-394, December.
  23. Prakash Loungani, 2000. "How Accurate Are Private Sector Forecasts," IMF Working Papers, International Monetary Fund 00/77, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ces:ifowps:_39. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.