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How quickly do forecasters incorporate news? Evidence from cross-country surveys

  • Isiklar, Gultekin
  • Lahiri, Kajal
  • Loungani, Prakash

Using forecasts from Consensus Economics Inc., we provide evidence on the efficiency of real GDP growth forecasts by testing whether forecast revisions are uncorrelated. As the forecast data used are multi-dimensional—18 countries, 24 monthly forecasts for the current and the following year and 16 target years—the panel estimation takes into account the complex structure of the variance–covariance matrix due to propagation of shocks across countries and economic linkages among them. Efficiency is rejected for all 18 countries: forecast revisions show a high degree of serial correlation. We then develop a framework for characterizing the nature of the inefficiency in forecasts. For a smaller set of countries, the G-7, we estimate a VAR model on forecast revisions. The degree of inefficiency, as mananifested in the serial correlation of forecast revisions, tends to be smaller in forecasts of the USA than in forecasts for European countries. Our framework also shows that one of the sources of the inefficiency in a country’s forecasts is resistance to utilizing foreign news. Thus the quality of forecasts for many of these countries can be significantly improved if forecasters pay more attention to news originating from outside their respective countries. This is particularly the case for Canadian and French forecasts, which would gain by paying greater attention than they do to news from the USA and Germany, respectively.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22065.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:22065
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  1. Canova, Fabio & Marrinan, Jane, 1998. "Sources and propagation of international output cycles: Common shocks or transmission?," Journal of International Economics, Elsevier, vol. 46(1), pages 133-166, October.
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  8. Pesaran, M.H. & Timmermann, A., 1990. "A Simple, Non-Parametric Test Of Predictive Performance," Cambridge Working Papers in Economics 9021, Faculty of Economics, University of Cambridge.
  9. Pesaran, M. Hashem, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," IZA Discussion Papers 1240, Institute for the Study of Labor (IZA).
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  11. Merton, Robert C, 1981. "On Market Timing and Investment Performance. I. An Equilibrium Theory of Value for Market Forecasts," The Journal of Business, University of Chicago Press, vol. 54(3), pages 363-406, July.
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  15. repec:oup:restud:v:47:y:1980:i:1:p:239-53 is not listed on IDEAS
  16. Prakash Loungani, 2000. "How Accurate Are Private Sector Forecasts: Cross-Country Evidence From Consensus Forecasts of Output Growth," IMF Working Papers 00/77, International Monetary Fund.
  17. Davies, Anthony & Lahiri, Kajal, 1995. "A new framework for analyzing survey forecasts using three-dimensional panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 205-227, July.
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  22. Faust, Jon & Rogers, John H & Wright, Jonathan H, 2005. "News and Noise in G-7 GDP Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 403-19, June.
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