Information or Institution? – On the Determinants of Forecast Accuracy
The accuracy of macroeconomic forecast depends on various factors, most importantly the mix of analytical methods used by the individual forecasters, the way that their personal experience is shaping their identifi cation strategies, but also their effi - ciency in translating new information into revised forecasts. In this paper we use a broad sample of forecasts of German GDP and its components to analyze the impact of institutions and information on forecast accuracy. We fi nd that forecast errors are a linear function of the forecast horizon. This result is robust over a variety of diff erent specifi cations. As better information seems to be the key to achieving better forecasts, approaches for acquiring reliable information early seem to be a good investment. By contrast, the institutional factors tend to be small and statistically insignifi cant. It has to remain open, whether this is the consequence of the effi ciency-enhancing competition among German research institutions or rather the refl ection of an abundance of forecast suppliers.
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