Consensus Economics Research Articles

Macroeconomics with Firms and Stock Markets

Abstract Empirical work on stock market data, coupled with behavioural findings on corporate decision-making, have produced a set of challenges for orthodox macroeconomics. This paper critically considers the work of Andrew Smithers and related contributions, the insights from which have largely been ignored in consensus economics. Key features of this alternative framework are a rejection of efficient markets; a distinction between market and fundamental value of assets; the need to consider multiple financial assets; perverse effects of managerial compensation; the heterogeneity of economic actors; and behavioural theories of corporate decisions. The way that these facets are unified in a coherent critique marks Smithers out as an original thinker. But his work should also be seen in the context of past and contemporary authors who have attempted to incorporate firms and shareholders into economic theory. Despite the broad historical sweep of his work, Smithers has surprisingly little to say about political economy. Apart from references to executive compensation, his account does not differentiate much between the managerial capitalism and the era of shareholder value that has characterized major Anglophone countries since the 1980s. The result of this is that doubts remain over elements of his theory and that some policy implications are uncertain or unexplored.

Are consensus FX forecasts valuable for investors?

We establish a new link between the cross-section of currency returns and survey-based forecasts. Using data from Consensus Economics, we show that surveys provide trading signals which are not entirely driven by standard benchmark trading strategies such as momentum, carry, or value. We evidence the sizable economic value of survey-based trading strategies, as they provide additional excess returns of up to two percentage points per year compared to benchmarks. This illustrates that professionals effectively explore available information and that their expertise can be used to diversify exchange rate portfolios. Our findings are robust against various tests and different currency portfolios structures.

The Impact of Uncertainty in Macroeconomic Variables on Stock Returns in the USA

In this research paper, the impact of macroeconomic uncertainty on stock returns in the United States of America is examined. To measure this macroeconomic uncertainty, a survey of Consensus Economics with data ranging from 1989 until 2019 was employed. The survey consists of monthly forecasts for several macroeconomic variables for multiple countries. Four uncertainty measures were developed, based on the standard deviation, interquartile range, high-minus-low and an AR- and GARCH model. By performing linear regressions, a positive relationship between macroeconomic uncertainty and stock returns was identified for, on average, 13 out of 49 sectors, which is consistent with economic theory. Furthermore, the standard deviation of stock returns was regressed on macroeconomic uncertainty. A positive relationship was found for, on average, 41.7 out of 49 sectors. The results are discussed at a general level, at the level of the macroeconomic variables and at the sector level.

The role of expectations for currency crisis dynamics—The case of the Turkish lira

AbstractThis paper examines whether and how expectations have contributed to the turbulent path of the Turkish lira since 2008. We derive uncertainty measures surrounding gross domestic product (GDP) growth, inflation, the interest rate, and exchange rates based on survey data from Consensus Economics. Our results illustrate that forecasts have affected realized exchange rates and stock market returns via increased uncertainty. We also show that expectations regarding monetary policy have changed throughout the sample period. In line with, a gradual adjustment of expectations professionals have accounted for the violation of the Taylor rule.

Perceived monetary policy uncertainty

This paper examines whether media attention affects the macroeconomic effects of monetary policy uncertainty. We combine survey data from Consensus Economics and data on media attention from MarketPsych to distinguish between uncertainty and perceived uncertainty among the public. We assess the corresponding nonlinear effects on stock returns, the growth of industrial production, and inflation. Our results confirm that monetary policy uncertainty tends to have negative effects on production growth and stock returns. In particular for industrial production, such effects tend to be stronger in case of higher media coverage which acts as a propagation mechanism.

Noise shocks and business cycle fluctuations in three major European Economies.

This paper investigates how supply noise and demand noise contribute to business cycle fluctuations in three major European economies. A structural vector autoregressive model is used to identify supply, demand, supply noise and demand shocks. The identification scheme is built on nowcast errors of output growth and the inflation rate that are derived from the Consensus Economics Survey. The results indicate that positive supply noise and positive demand noise shocks have an expansionary effect on output, but their magnitude differs across countries. The two shocks contribute equally to business fluctuations, and jointly, they account for around one quarter of the total variation in GDP in each of the three countries.

What drives updates of inflation expectations? A Bayesian VAR analysis for the G‐7 countries

AbstractInflation expectations play a crucial role for monetary policy transmission, having become even more important since the emergence of unconventional monetary policy. Based on survey data provided by Consensus Economics, we assess determinants of professional inflation expectations for the G7 economies, emphasising the role of international spillovers arising from the United States in inflation expectations. We also consider several other determinants of inflation expectation updates such as changes in the path of monetary policy, oil price shocks and changes in uncertainty measures. Based on a Bayesian VAR, we find significant evidence of international spillovers stemming from expectations about US monetary policy based on impulse‐response functions and forecast error decompositions. We provide similar evidence on spillovers from the dispersion across inflation forecasts, too.

Does forward guidance of the ECB matter for the accuracy of private sector inflation forecasts?

ABSTRACT Data from the Consensus Economics Forecast Poll is used to analyse whether Forward Guidance of the ECB affected the accuracy of private sector inflation forecasts. Using more than 4,000 data points our results indicate an improvement of private sector inflation forecasts in terms of accuracy after the change in ECB communication towards Forward Guidance.

Evaluating heterogeneous forecasts for vintages of macroeconomic variables

AbstractThere are various reasons why professional forecasters may disagree in their quotes for macroeconomic variables. One reason is that they target at different vintages of the data. We propose a novel method to test forecast bias in case of such unobserved heterogeneity. The method is based on so‐called symbolic regression, where the variables of interest become interval variables. We associate the interval containing the vintages of data with the intervals of the forecasts. An illustration to 18 years of forecasts for annual US real GDP growth, given by the Consensus Economics forecasters, shows the relevance of the method.

An Evaluation of World Economic Outlook Growth Forecasts, 2004–17

This paper examines the performance of World Economic Outlook (WEO) growth forecasts for 2004-17. Short-term real GDP growth forecasts over that period exhibit little bias, and their accuracy is broadly similar to those of Consensus Economics forecasts. By contrast, two- to five-year ahead WEO growth forecasts in 2004-17 tend to be upward biased, and in up to half of countries less accurate than a naive forecast given by the average growth rate in the recent past. The analysis suggests that a more efficient use of available information on internal and external factors—such as the estimated output gap, projected terms of trade, and the growth forecasts of major trading partners—can improve the accuracy of some economies’ growth forecasts.

Interest rate forecasts in Latin America

PurposeThis paper aims to assess the quality of interest rate forecasts for the money markets in Argentina, Brazil, Chile, Mexico and Venezuela for the period between 2001 and 2019. Future interest rate trends are of key significance for many business-related decisions. Thus, reliable interest rate forecasts are essential, for example, for banks that make profits by carrying out maturity transformations.Design/methodology/approachThe data that we analyze were collected by Consensus Economics through a monthly survey with over 120 renowned economists and were published between 2001 and 2019 in the journal Latin American Consensus Forecasts. The authors use the Diebold-Mariano test, the sign accuracy test, the TOTA coefficient and the unbiasedness test to determine the precision and biasedness of the forecasts.FindingsThe research reveals that the forecasting work carried out in Brazil, Chile and Mexico is remarkably successful. The quality of forecasts from Argentina and Venezuela, on the other hand, is significantly poorer.Originality/valueOver 50 studies have already been published with regard to the accuracy of interest rate forecasts, emphasizing the importance of the topic. However, interest rate forecasts for Latin American money markets have hardly been considered thus far. The paper closes this research gap. Overall, the analyzed database amounts to a total of 209 forecast time series with 28,451 individual interest rate forecasts. This study is thus far more comprehensive than all previous studies.

How far can we forecast? Statistical tests of the predictive content

SummaryWe develop tests for the null hypothesis that forecasts become uninformative beyond some maximum forecast horizon h∗. The forecast may result from a survey of forecasters or from an estimated parametric model. The first class of tests compares the mean‐squared prediction error of the forecast to the variance of the evaluation sample, whereas the second class of tests compares it with the mean‐squared prediction error of the recursive mean. We show that the forecast comparison may easily be performed by adopting the encompassing principle, which results in simple regression tests with standard asymptotic inference. Our tests are applied to forecasts of macroeconomic key variables from the survey of Consensus Economics. The results suggest that these forecasts are barely informative beyond two to four quarters ahead.

Do Inflation Expectations Improve Model-Based Inflation Forecasts?

Those of professional forecasters do. For a wide range of time series models for the euro area and its member states we find a higher average forecast accuracy of models that incorporate information on inflation expectations from the ECB’s SPF and Consensus Economics compared to their counterparts that do not. The gains in forecast accuracy from incorporating inflation expectations are typically not large but significant in some periods. Both short- and long-term expectations provide useful information. By contrast, incorporating expectations derived from financial market prices or those of firms and households does not lead to systematic improvements in forecast performance. Individual models we consider are typically better than univariate benchmarks but for the euro area the professional forecasters are more accurate, especially in recent years (not always for the countries). The analysis is undertaken for headline inflation and inflation excluding energy and food and both point and density forecast are evaluated using real-time data vintages over 2001-2019.

Fiscal policy in the US: a new measure of uncertainty and its effects on the American economy

We use the dispersion of the Federal Budget Balance forecasts from Consensus Economics to construct a new measure of fiscal uncertainty; constant horizon forecasts are obtained through mixture distributions. The scheme we propose has several advantages over previous uncertainty measures. First (as opposed to recent proposals), it results in a forward-looking measure, which implies that any sudden development in terms of an (un)expected fiscal stance is immediately incorporated in the series. Second, the measure is by construction a real-time one. Third, being completely model-free, it is not contaminated (inflated) by model uncertainty. Fourth, our measure does not simply track uncertainty stemming from public consumption and investment, whereas it is comprehensive in also accounting both for the critical welfare component of public expenditure and for taxes. Fifth, as opposed to uncertainty indexes which can be interpreted only dynamically, our measure has an obvious intuitive point-wise interpretation. Interestingly, the inception of the Trump administration has led to unprecedented uncertainty shocks which have demonstrably put a non-negligible brake on the slow US recovery. More generally, we show that fiscal uncertainty shocks have clear recessionary effects. Furthermore, constraints on monetary policies during the ZLB have likely strengthened the recessionary effects of fiscal uncertainty shocks.

Individual inflation forecasts and monetary policy announcements

Using a decomposition of US monetary policy shocks and inflation forecasts from Consensus Economics, we find that information and monetary policy shocks move inflation expectations in opposite directions. Better performing forecasters appear less reliant on the informational content of announcements.

The Framework of Consensus Equilibria for Mining-Pool Games and Related Stability of Gap Games Behaviors in Blockchain Ecosystems

The goal of this paper is to establish the general framework of consensus equilibria for Mining-Pool Games in Blockchain Ecosystems, and in particular to explain the stable in the sense for the existence of consensus equilibria related to mining gap game’s behaviors by using one new concept called “consensus games (CG)” in Blockchain Ecosystems, here, the Blockchain ecosystem mainly means the economic activities by taking into the account of three types of different factors which are expenses, reward mechanism and mining power for the work on blockschain by applying the key consensus called “Proof of Work” due to Nakamoto in 2008. In order to do so, we first give an outline how the general existence of consensus equilibria for Mining-Pool Games is formulated, and then used to explain the stable for Gap Games for Bitcoin in the sense by the existence of consensus equilibria under the framework of Blockchain consensus, we then establish a general existence result for consensus equilibria of general mining gap games by using the profit functions for miners as the payoffs in game theory. As applications, the general existence results for consensus equilibria of Gap games are established, which not only help us to claim the existence for the general stability for Gap games under the general framework of Blockchain ecosystems, but also allow us to illustrate a number of different phenomenons on the study of mining- pool games with possible impacts due to miners’ gap behaviors with scenarios embedded in Bitcoin economics. Our study on the explanation for the stability of mining gap game for Blockchain ecosystems shows that the concept of consensus equilibria may play a important role for the development of fundamental theory for consensus economics.

Information rigidities and exchange rate expectations

Sluggish adjustment of expectations to new information is rational in an environment characterized by information costs and signal-to-noise problems. This paper investigates the role of such information rigidities for exchange rate expectations using data from Consensus Economics for ten emerging and industrial economies from 1999 until 2015. Our results confirm the importance of rigidities and show that the inclusion of forecast updates largely accounts for otherwise detected biases in expectation errors. Moreover, we find little evidence for a systematic effect of fundamentals or uncertainty measures on exchange rate disagreement.

Inflation Expectations Anchoring: New Insights from Micro Evidence of a Survey at High-frequency and of Distributions

We shed new light on the anchoring of long-term euro area inflation expectations since the crisis by using micro evidence from a new survey at high (weekly) frequency. We find that long-term inflation expectations remained well anchored to the ECB’s inflation aim, which has acted as a focal point. By contrast, we find no evidence that professional forecasts (reported by Consensus Economics) acted as focal points. But there are subtle signs of long-term inflation expectations not being perfectly well-anchored. Using measures based on the distribution of inflation expectations from a quarterly survey, namely uncertainty based on the full distribution, the probability of expected long-term inflation lying between 1.5% and 2.5%, and the effect of short-term on long-term deflation risk, we find that long-term euro area inflation expectations have remained well-anchored, and have become better-anchored between 2011 and 2018.

Fiscal Policy in the US: A New Measure of Uncertainty and Its Recent Development

We use the dispersion of the Federal Budget Balance forecasts from Consensus Economics to produce a new measure of fiscal uncertainty; constant horizon forecasts are obtained through mixture distributions. The scheme we propose has several advantages over previous uncertainty measures. First (as opposed to recent proposals) it results in a forward-looking measure, which implies that any sudden development in (un)expected fiscal stance is immediately incorporated in the series. Second, the measure is by construction a real-time one. Third, being completely model-free it is not contaminated (inflated) by model uncertainty. Fourth, it is comprehensive in accounting both for the critical welfare component of public expenditures and for taxes, i.e. it does not simply track uncertainty stemming from public consumption and investment. Fifth, as opposed to uncertainty indexes which can be interpreted only dynamically, our measure has an obvious intuitive point-wise interpretation. Interestingly, the inception of the Trump administration has led to unprecedented uncertainty shocks which are shown to have put a non-negligible brake on the US slow recovery. On a more general level, we show that fiscal uncertainty shocks have clear recessionary effects. Furthermore, constraints on monetary policies during the ZLB have likely caused the recessionary effects of fiscal uncertainty shocks to be stronger.

Do IMF fiscal forecasts add value?

AbstractWe used a panel of 29 advanced and emerging market countries to investigate whether the IMF's World Economic Outlook (WEO) fiscal forecasts add value in terms of forecast accuracy and information content, relative to private sector forecasts (from Consensus Economics). We find that: (i) WEO forecasts are not significantly less accurate than Consensus forecasts; (ii) WEO and Consensus forecasts tend to mutually encompass one another; and (iii) each source of forecasts appears to contain some information that is not embedded in the other source.