Economic policy uncertainty and forecast bias in the survey of professional forecasters

This paper analyzes the properties of forecast bias in the Survey of Professional Forecasters in relation to economic policy uncertainty. Employing the quarterly forecast bias of 14 key macroeconomic variables and 12 measures of policy uncertainty from 1985 to 2020, we demonstrate that most real activity variables have significant negative responses to economic policy uncertainty. On the other hand, there is a substantial degree of sluggishness in the corresponding forecasts, generating long-lasting forecast bias. In other words, our results show that inattentive forecasters cause SPF forecast bias using both static and dynamic frameworks.