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Forecasting ECB Monetary Policy: Accuracy Is (Still) a Matter of Geography

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  • Michael Ehrmann
  • Marcel Fratzscher
  • Helge Berger

Abstract

Monetary policy in the euro area is conducted within a multicountry, multicultural, and multilingual context involving multiple central banking traditions. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the European Central Bank (ECB)? Using a database of surveys of professional ECB policy forecasters in 24 countries, we find remarkable differences in forecast accuracy, and show that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions and traditions of independent central banking in the past. In large part, this heterogeneity can be traced to differences in forecasting models. While some systematic differences between analysts have been transitional and are indicative of learning, others are more persistent.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/41.

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Length: 196
Date of creation: 01 Feb 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/41

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Keywords: European Central Bank; Economic forecasting; Data collection; Data analysis;

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Citations

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Cited by:
  1. Koulovatianos, Christos & Schröder, Carsten & Schmidt, Ulrich, 2009. "Nonmarket household time and the cost of children," Open Access publications from Kiel Institute for the World Economy info:hdl:10419/28906, Kiel Institute for the World Economy.
  2. Christopher W. Crowe, 2006. "Testing the Transparency Benefits of Inflation Targeting: Evidence from Private Sector Forecasts," IMF Working Papers 06/289, International Monetary Fund.
  3. Menkhoff, Lukas & Schmeling, Maik, 2006. "Local Information in Foreign Exchange Markets," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-331, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  4. Berger, Helge & Ehrmann, Michael & Fratzscher, Marcel, 2008. "Geography or skills: what explains Fed Wachters' forecast accuracy of US monetary policy?," Discussion Papers 2008/11, Free University Berlin, School of Business & Economics.
  5. Torben Lütje & Lukas Menkhoff, 2007. "What drives home bias? Evidence from fund managers' views," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(1), pages 21-35.
  6. Daniel A. Dias & Carlos Robalo Marques & João M. C. Santos Silva, 2006. "Measuring the importance of the uniform nonsynchronization hypothesis," Working Paper Series 606, European Central Bank.
  7. Menno Middeldorp, 2011. "Central bank transparency, the accuracy of professional forecasts, and interest rate volatility," Staff Reports 496, Federal Reserve Bank of New York.
  8. Andrzej Torój, 2009. "Solving forward-looking models of cross-country adjustment within the euro area," Working Papers 1, Ministry of Finance in Poland.
  9. Torój, Andrzej, 2009. "Solving forward-looking models of cross-country adjustment within the euro area," MF Working Papers 1, Ministry of Finance in Poland.
  10. Martin Cihák & Katerina Smídková & Ales Bulir, 2008. "Writing Clearly: ECB's Monetary Policy Communication," IMF Working Papers 08/252, International Monetary Fund.
  11. Jan Babecky & Jiri Podpiera, 2008. "Inflation Forecasts Errors in the Czech Republic: Evidence from a Panel of Institutions," Occasional Publications - Chapters in Edited Volumes, in: Katerina Smidkova (ed.), Evaluation of the Fulfilment of the CNB's Inflation Targets 1998-2007, chapter 6, pages 77-85 Czech National Bank, Research Department.
  12. Andrade, Sandro C. & Kohlscheen, Emanuel, 2010. "Pessimistic Foreign Investors and Turmoil in Emerging Markets : The Case of Brazil in 2002," The Warwick Economics Research Paper Series (TWERPS) 926, University of Warwick, Department of Economics.

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