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Macroeconomic Forecasts and the Nature of Economic Shocks in Germany

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  • Jörg Döpke
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    Abstract

    The paper investigates the sources of macroeconomic forecast errors in Germany. The predictions of the so-called "six leading" research institutes are analyzed. The forecast errors are discussed within an aggregate demand/supply scheme. Structural Vector Autoregressive Models are estimated to identify the shocks underlying the business cycle. It is tested whether these shocks can explain the forecast errors. The empirical results suggest that, in general, the shocks are helpful in explaining the forecast errors. However, the correlations are rather weak. In addition, lagged shocks help also to explain the mispredictions of the institutes. Thus, forecasters' expectations are not rational. Der Beitrag untersucht die Ursachen von Fehlern der Konjunkturprognose der Gemeinschaftsdiagnose der Arbeitsgemeinschaft wirtschaftswissenschaftlicher Forschungsinstitute in Deutschland. Die Prognosefehler werden im Rahmen eines aggregierten Angebot/Nachfrage-Modells interpretiert. Es werden strukturelle VARs geschätzt und mit ihrer Hilfe die Schocks identifiziert, die den deutschen Konjunkturzyklus treiben. Diese Schocks können einen Teil der Vorhersagefehler erklären. Der Anteil der so erklärbaren Prognosefehler ist jedoch klein. Darüber hinaus erweisen sich verzögerte Schocks als signifikant für die Prognosefehler. Dies steht im Widerspruch zu der Annahme, die Prognosen stellten rationale Erwartungen dar.

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 972.

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    Length: 32 pages
    Date of creation: Apr 2000
    Date of revision:
    Handle: RePEc:kie:kieliw:972

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    Related research

    Keywords: Forecast error evaluation; Structural VARs; Business cycles;

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    References

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    1. Ash, J. C. K. & Smyth, D. J. & Heravi, S. M., 1998. "Are OECD forecasts rational and useful?: a directional analysis," International Journal of Forecasting, Elsevier, vol. 14(3), pages 381-391, September.
    2. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 907-31, November.
    3. Emile Grunberg & Franco Modigliani, 1954. "The Predictability of Social Events," Journal of Political Economy, University of Chicago Press, vol. 62, pages 465.
    4. Weber, Axel A., 1996. "Germany before and after unification: A structural VAR analysis," Economic Modelling, Elsevier, vol. 13(4), pages 575-601, October.
    5. Bathcelor, Roy & Dua, Pami, 1990. "Forecaster ideology, forecasting technique, and the accuracy of economic forecasts," International Journal of Forecasting, Elsevier, vol. 6(1), pages 3-10.
    6. Bullard, James & Keating, John W., 1995. "The long-run relationship between inflation and output in postwar economies," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 477-496, December.
    7. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
    8. Thomas J. Jordan & Carlos Lenz, 1994. "Demand and Supply Shocks in the IS-LM Model: Empirical Findings for five Countries," Diskussionsschriften dp9408, Universitaet Bern, Departement Volkswirtschaft.
    9. Mills, Terence C. & Pepper, Gordon T., 1999. "Assessing the forecasters: an analysis of the forecasting records of the Treasury, the London Business School and the National Institute," International Journal of Forecasting, Elsevier, vol. 15(3), pages 247-257, July.
    10. David E. Runkle, 1998. "Revisionist history: how data revisions distort economic policy research," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-12.
    11. Sterne, Gabriel & Bayoumi, Tamim, 1995. "Temporary Cycles or Volatile Trends? Economic Fluctuations in 21 OECD Economies," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(1), pages 23-51, March.
    12. Zarnowitz, Victor, 1992. "Business Cycles," National Bureau of Economic Research Books, University of Chicago Press, number 9780226978901, January.
    13. Funke, Michael, 1997. "Supply potential and output gaps in West German manufacturing," International Journal of Forecasting, Elsevier, vol. 13(2), pages 211-222, June.
    14. Boss, Alfred, 1996. "Fiskalpolitik und Konjunktur," Kiel Working Papers 772, Kiel Institute for the World Economy.
    15. Funke, Michael, 1997. "How important are demand and supply shocks in explaining German business cycles?: New evidence on an old debate," Economic Modelling, Elsevier, vol. 14(1), pages 11-37, January.
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