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Does Disagreement amongst Forecasters have Predictive Value?

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Author Info

  • Rianne Legerstee

    (Erasmus University Rotterdam)

  • Philip Hans Franses

    (Erasmus University Rotterdam)

Abstract

Forecasts from various experts are often used in macroeconomic forecasting models. Usually the focus is on the mean or median of the survey data. In the present study we adopt a different perspective on the survey data as we examine the predictive power of disagreement amongst forecasters. The premise is that this variable could signal upcoming structural or temporal changes in an economic process or in the predictive power of the survey forecasts. In our empirical work, we examine a variety of macroeconomic variables, and we use different measurements for the degree of disagreement, together with measures for location of the survey data and autoregressive components. Forecasts from simple linear models and forecasts from Markov regime-switching models with constant and with time-varying transition probabilities are constructed in real-time and compared on forecast accuracy. We find that disagreement has predictive power indeed and that this variable can be used to improve forecasts when used in Markov regime-switching models.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-088/4.

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Date of creation: 03 Sep 2010
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Handle: RePEc:dgr:uvatin:20100088

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Web page: http://www.tinbergen.nl

Related research

Keywords: model forecasts; expert forecasts; survey forecasts; Markov regime-switching models; disagreement; time series;

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References

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  1. Zacharias Psaradakis & Nicola Spagnolo, 2006. "Joint Determination of the State Dimension and Autoregressive Order for Models with Markov Regime Switching," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(5), pages 753-766, 09.
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Cited by:
  1. Badarinza, Cristian & Buchmann, Marco, 2011. "Macroeconomic vulnerability and disagreement in expectations," Working Paper Series 1407, European Central Bank.

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