IDEAS home Printed from https://ideas.repec.org/a/pes/ierequ/v11y2016i1p9-41.html
   My bibliography  Save this article

Macroeconomic Forecast Uncertainty In The Euro Area

Author

Listed:
  • Victor Lopez-Perez

    (Universidad Politécnica de Cartagena)

Abstract

This paper estimates aggregate measures of macroeconomic uncertainty from individual density forecasts by professional forecasters. The methodology used in the paper improves on the existing literature along two dimensions. Firstly, it controls for changes to the composition of the panel of respondents to the survey. And secondly, it assigns more weight to the information submitted by forecasters with better forecasting performance. Using data from the European Central Bank’s Survey of Professional Forecasters from 1999 Q1 to 2014 Q3, the paper finds that the effects of changes in the composition of the panel on aggregate uncertainty can be large in a statistical and economic sense. It also finds that the estimates of aggregate uncertainty that use performance-based weights differ significantly from the simple averages used in the literature and their dynamics are more consistent with the dynamics displayed by the estimates of uncertainty computed from financial indicators.

Suggested Citation

  • Victor Lopez-Perez, 2016. "Macroeconomic Forecast Uncertainty In The Euro Area," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 11(1), pages 9-41, March.
  • Handle: RePEc:pes:ierequ:v:11:y:2016:i:1:p:9-41
    DOI: 10.12775/EQUIL.2016.001
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.12775/EQUIL.2016.001
    Download Restriction: no

    File URL: https://libkey.io/10.12775/EQUIL.2016.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Billio, Monica & Casarin, Roberto & Ravazzolo, Francesco & van Dijk, Herman K., 2013. "Time-varying combinations of predictive densities using nonlinear filtering," Journal of Econometrics, Elsevier, vol. 177(2), pages 213-232.
    2. Susanto Basu & Brent Bundick, 2017. "Uncertainty Shocks in a Model of Effective Demand," Econometrica, Econometric Society, vol. 85, pages 937-958, May.
    3. Anne Sofie Jore & James Mitchell & Shaun P. Vahey, 2010. "Combining forecast densities from VARs with uncertain instabilities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 621-634.
    4. Bekaert, Geert & Hoerova, Marie & Lo Duca, Marco, 2013. "Risk, uncertainty and monetary policy," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 771-788.
    5. Christian Kascha & Francesco Ravazzolo, 2010. "Combining inflation density forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(1-2), pages 231-250.
    6. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    7. Capistrán, Carlos & Timmermann, Allan, 2009. "Forecast Combination With Entry and Exit of Experts," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 428-440.
    8. Genre, Véronique & Kenny, Geoff & Meyler, Aidan & Timmermann, Allan, 2013. "Combining expert forecasts: Can anything beat the simple average?," International Journal of Forecasting, Elsevier, vol. 29(1), pages 108-121.
    9. James Mitchell & Stephen G. Hall, 2005. "Evaluating, Comparing and Combining Density Forecasts Using the KLIC with an Application to the Bank of England and NIESR ‘Fan’ Charts of Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 995-1033, December.
    10. Garcí­a, Juan Angel & Manzanares, Andrés, 2007. "What can probability forecasts tell us about inflation risks?," Working Paper Series 825, European Central Bank.
    11. Leahy, John V & Whited, Toni M, 1996. "The Effect of Uncertainty on Investment: Some Stylized Facts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 64-83, February.
    12. Cristina Conflitti, 2012. "Measuring Uncertainty and Disagreement in the European Survey of Professional Forecasters," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2011(2), pages 69-103.
    13. Giordani, Paolo & Soderlind, Paul, 2003. "Inflation forecast uncertainty," European Economic Review, Elsevier, vol. 47(6), pages 1037-1059, December.
    14. Geoff Kenny & Thomas Kostka & Federico Masera, 2015. "Density characteristics and density forecast performance: a panel analysis," Empirical Economics, Springer, vol. 48(3), pages 1203-1231, May.
    15. Conflitti, Cristina & De Mol, Christine & Giannone, Domenico, 2015. "Optimal combination of survey forecasts," International Journal of Forecasting, Elsevier, vol. 31(4), pages 1096-1103.
    16. Dr. James Mitchell, 2005. "Evaluating, comparing and combining density forecasts using the KLIC with an application to the Bank of England and NIESR ÔfanÕ charts of inflation," National Institute of Economic and Social Research (NIESR) Discussion Papers 253, National Institute of Economic and Social Research.
    17. Domenico Giannone & Jérôme Henry & Magdalena Lalik & Michele Modugno, 2012. "An Area-Wide Real-Time Database for the Euro Area," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1000-1013, November.
    18. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January.
    19. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    20. Monica Neamtiu & Nemit Shroff & Hal D. White & Christopher D. Williams, 2014. "The Impact of Ambiguity on Managerial Investment and Cash Holdings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(7-8), pages 1071-1099, September.
    21. Gianna Boero & Jeremy Smith & Kenneth F. Wallis, 2008. "Uncertainty and Disagreement in Economic Prediction: The Bank of England Survey of External Forecasters," Economic Journal, Royal Economic Society, vol. 118(530), pages 1107-1127, July.
    22. Dr. James Mitchell, 2005. "Evaluating, comparing and combining density forecasts using the KLIC with an application to the Bank of England and NIESR ÔfanÕ charts of inflation," National Institute of Economic and Social Research (NIESR) Discussion Papers 253, National Institute of Economic and Social Research.
    23. Hall, Stephen G. & Mitchell, James, 2007. "Combining density forecasts," International Journal of Forecasting, Elsevier, vol. 23(1), pages 1-13.
    24. Joseph Engelberg & Charles F. Manski & Jared Williams, 2011. "Assessing the temporal variation of macroeconomic forecasts by a panel of changing composition," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(7), pages 1059-1078, November.
    25. Wallis, Kenneth, 2006. "A note on the calculation of entropy from histograms," MPRA Paper 52856, University Library of Munich, Germany.
    26. Gneiting, Tilmann & Raftery, Adrian E., 2007. "Strictly Proper Scoring Rules, Prediction, and Estimation," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 359-378, March.
    27. Robert Rich & Joseph Tracy, 2010. "The Relationships among Expected Inflation, Disagreement, and Uncertainty: Evidence from Matched Point and Density Forecasts," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 200-207, February.
    28. Jeremy Smith & Kenneth F. Wallis, 2009. "A Simple Explanation of the Forecast Combination Puzzle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(3), pages 331-355, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kenneth Wallis, 2011. "Combining forecasts - forty years later," Applied Financial Economics, Taylor & Francis Journals, vol. 21(1-2), pages 33-41.
    2. Knut Are Aastveit & James Mitchell & Francesco Ravazzolo & Herman van Dijk, 2018. "The Evolution of Forecast Density Combinations in Economics," Tinbergen Institute Discussion Papers 18-069/III, Tinbergen Institute.
    3. Davide Pettenuzzo & Francesco Ravazzolo, 2016. "Optimal Portfolio Choice Under Decision‐Based Model Combinations," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(7), pages 1312-1332, November.
    4. repec:zbw:bofrdp:037 is not listed on IDEAS
    5. Barbara Rossi, 2019. "Forecasting in the presence of instabilities: How do we know whether models predict well and how to improve them," Economics Working Papers 1711, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2021.
    6. Knut Are Aastveit & Claudia Foroni & Francesco Ravazzolo, 2017. "Density Forecasts With Midas Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(4), pages 783-801, June.
    7. Roberto Casarin & Stefano Grassi & Francesco Ravazzolo & Herman K. van Dijk, 2015. "Dynamic predictive density combinations for large data sets in economics and finance," Working Paper 2015/12, Norges Bank.
    8. Wang, Xiaoqian & Hyndman, Rob J. & Li, Feng & Kang, Yanfei, 2023. "Forecast combinations: An over 50-year review," International Journal of Forecasting, Elsevier, vol. 39(4), pages 1518-1547.
    9. Ambrocio, Gene, 2017. "The real effects of overconfidence and fundamental uncertainty shocks," Research Discussion Papers 37/2017, Bank of Finland.
    10. Federico Bassetti & Roberto Casarin & Francesco Ravazzolo, 2019. "Density Forecasting," BEMPS - Bozen Economics & Management Paper Series BEMPS59, Faculty of Economics and Management at the Free University of Bozen.
    11. Pilar Poncela & Eva Senra, 2017. "Measuring uncertainty and assessing its predictive power in the euro area," Empirical Economics, Springer, vol. 53(1), pages 165-182, August.
    12. Petropoulos, Fotios & Apiletti, Daniele & Assimakopoulos, Vassilios & Babai, Mohamed Zied & Barrow, Devon K. & Ben Taieb, Souhaib & Bergmeir, Christoph & Bessa, Ricardo J. & Bijak, Jakub & Boylan, Joh, 2022. "Forecasting: theory and practice," International Journal of Forecasting, Elsevier, vol. 38(3), pages 705-871.
      • Fotios Petropoulos & Daniele Apiletti & Vassilios Assimakopoulos & Mohamed Zied Babai & Devon K. Barrow & Souhaib Ben Taieb & Christoph Bergmeir & Ricardo J. Bessa & Jakub Bijak & John E. Boylan & Jet, 2020. "Forecasting: theory and practice," Papers 2012.03854, arXiv.org, revised Jan 2022.
    13. repec:zbw:bofrdp:2017_037 is not listed on IDEAS
    14. Billio, Monica & Casarin, Roberto & Ravazzolo, Francesco & van Dijk, Herman K., 2013. "Time-varying combinations of predictive densities using nonlinear filtering," Journal of Econometrics, Elsevier, vol. 177(2), pages 213-232.
    15. Anne Opschoor & Dick van Dijk & Michel van der Wel, 2014. "Improving Density Forecasts and Value-at-Risk Estimates by Combining Densities," Tinbergen Institute Discussion Papers 14-090/III, Tinbergen Institute.
    16. Anne Sofie Jore & James Mitchell & Shaun P. Vahey, 2010. "Combining forecast densities from VARs with uncertain instabilities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 621-634.
    17. Knut Are Aastveit & Karsten R. Gerdrup & Anne Sofie Jore & Leif Anders Thorsrud, 2014. "Nowcasting GDP in Real Time: A Density Combination Approach," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(1), pages 48-68, January.
    18. Knüppel, Malte & Schultefrankenfeld, Guido, 2019. "Assessing the uncertainty in central banks’ inflation outlooks," International Journal of Forecasting, Elsevier, vol. 35(4), pages 1748-1769.
    19. Knut Are Aastveit & Francesco Ravazzolo & Herman K. van Dijk, 2018. "Combined Density Nowcasting in an Uncertain Economic Environment," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 36(1), pages 131-145, January.
    20. Conflitti, Cristina & De Mol, Christine & Giannone, Domenico, 2015. "Optimal combination of survey forecasts," International Journal of Forecasting, Elsevier, vol. 31(4), pages 1096-1103.
    21. Ravazzolo Francesco & Vahey Shaun P., 2014. "Forecast densities for economic aggregates from disaggregate ensembles," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 18(4), pages 1-15, September.
    22. Fabian Krüger & Ingmar Nolte, 2011. "Disagreement, Uncertainty and the True Predictive Density," Working Paper Series of the Department of Economics, University of Konstanz 2011-43, Department of Economics, University of Konstanz.

    More about this item

    Keywords

    macroeconomic uncertainty; Gini index; performance-based weights; Survey of Professional Forecasters; European Central Bank;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pes:ierequ:v:11:y:2016:i:1:p:9-41. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Adam P. Balcerzak (email available below). General contact details of provider: https://edirc.repec.org/data/ibgtopl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.