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Forecast errors and the macroeconomy — a non-linear relationship?

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Author Info
Ulrich Fritsche () (Department for Economics and Politics, University of Hamburg, and DIW Berlin)
Joerg Doepke () (Fachhochschule Merseburg)

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Abstract

The paper analyses reasons for departures from strong rationality of growth and inflation forecasts based on annual observations from 1963 to 2004. We rely on forecasts from the joint forecast of the so-called "six leading" forecasting institutions in Germany and argue that violations of the rationality hypothesis are due to relatively few large forecast errors. These large errors are shown - based on evidence from probit models - to correlate with macroeconomic fundamentals, especially on monetary factors. We test for a non-linear relation between forecast errors and macroeconomic fundamentals and find evidence for such a non-linearity for inflation forecasts.

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File URL: http://www.wiso.uni-hamburg.de/hepdoc/macppr_2_2006.pdf
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File Function: First version, 2006
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Publisher Info
Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 200602.

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Length: 27 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:hep:macppr:200602

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Web page: http://www.wiso.uni-hamburg.de/dwp
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Related research
Keywords: forecast error evaluation; non-linearities; business cycles;

Other versions of this item:

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

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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.:
  1. Christina D. Romer & David H. Romer, 2003. "A New Measure of Monetary Shocks: Derivation and Implications," NBER Working Papers 9866, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Gebhardt Kirschgässner & Marcel Savioz, 2001. "Monetary Policy and Forecasts for Real GDP Growth: An Empirical Investigation for the Federal Republic of Germany," German Economic Review, Blackwell Publishing, vol. 2(4), pages 339-365, November. [Downloadable!] (restricted)
  3. Mankiw, N. Gregory & Reis, Ricardo & Wolfers, Justin, 2003. "Disagreement about Inflation Expectations," Research Papers 1807, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  4. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias In Macroeconomic Forecasts," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 293-318, February. [Downloadable!] (restricted)
  5. Holden, K & Peel, D A, 1990. "On Testing for Unbiasedness and Efficiency of Forecasts," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 58(2), pages 120-27, June.
  6. Christina D. Romer & David H. Romer, 1990. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Working Papers 2966, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. St-Amant, P., 1996. "Decomposing U.S. Nominal Interest Rates into Expected Inflation and Ex Ante Real Interest rates Using Structural VAR Methodology," Working Papers 96-2, Bank of Canada. [Downloadable!]
    Other versions:
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