Abstract
Professional forecasters can rely on an econometric model to create their forecasts. It is usually unknown to what extent they adjust an econometric model-based forecast. In this paper we show, while making just two simple assumptions, that it is possible to estimate the persistence and variance of the deviation of their forecasts from forecasts from an econometric model. A key feature of the data that facilitates our estimates is that we have forecast updates for the same forecast target. An illustration to consensus forecasters who give forecasts for GDP growth, inflation and unemployment for a range of countries and years suggests that the more a forecaster deviates from a prediction from an econometric model, the less accurate are the forecasts.
Highlights
Much research on professional forecasters concerns their joint predictive accuracy and their behavior relative to each other
Our basic finding is that we find much evidence that more expert adjustment associates with lower forecast accuracy
To see to what extent the results for the USA in the previous section are representative for professional forecasters in other countries, we turn to the analysis of the professional forecasters in the Eurozone, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland and the UK, again for the variables real GDP growth, inflation and unemployment
Summary
Much research on professional forecasters concerns their joint predictive accuracy and their behavior relative to each other. Important studies are Batchelor (2001, 2007), Dovern and Weisser (2011), Frenkel et al (2013), Isiklar et al (2006), Lahiri and Sheng (2010), Loungani (2001), Capistrán and Timmermann (2009), Genre et al (2013) and Laster et al (1999), where the focus is on accuracy, on disagreement across forecasters, and their eventual herding behavior. At times of a crisis or turning points, they can be inaccurate all together. The latter may be due to their joint behavior, where herding is sometimes seen, see Laster et al (1999). In this paper we will study the behavior of the consensus forecasters
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