Professional forecasters' expectations, consistency, and international spillovers

Joscha Beckmann,Robert L Czudaj

doi:10.1002/for.2675

Abstract

AbstractThis paper focuses on the expectation formation process of professional forecasters by relying on survey data on forecasts regarding gross domestic product growth, consumer price index inflation and 3‐month interest rates for a broad set of countries. We examine the interrelation between macroeconomic forecasts and also the impact of uncertainty on forecasts by allowing for cross‐country interdependencies and time variation in the coefficients. We find that professional forecasts are often in line with the Taylor rule and identify significant expectation spillovers from monetary policy in the USA.

Highlights

An increasing amount of research has been devoted to the modeling and understanding of macroeconomic expectations in recent years
We turn to assessing the role of expected fundamentals for the expectation formation process of professional forecasters by focusing on the Taylor rule as a theoretical guideline and proceed by analyzing uncertainty effects on professional expectations
In this subsection we focus on the effect of economic policy uncertainty (EPU) on expectations regarding gross domestic product (GDP) growth, consumer price index (CPI) inflation, and short-term interest rates, and we again start with reactions to domestic EPU shocks

Summary

Introduction

An increasing amount of research has been devoted to the modeling and understanding of macroeconomic expectations in recent years This is due to both the changing environment after the emergence of unconventional monetary policy and the increasing availability of survey data over longer periods. The latter allows, for example, testing the validity of noisy and sticky information models in the context of information rigidity among the framework introduced by Coibion and Gorodnichenko (2015). Successful signaling allows policymakers to convey information about the future path of interest rates and affect macroeconomic expectations (Haldane, Roberts-Sklar, Wieladek, & Young, 2016). Against this background, understanding the expectation-building process of both macroeconomic fundamentals and future interest rates and the interlinkage among them is of great interest for policymakers and researchers

Methods

Results

Conclusion