Consensus Economics Research Articles

Monetární nerovnováha v teorii endogenních peněz

The article deals with monetary disequilibrium in the theory of endogenous money. In new consensus economics, monetary disequilibrium is not considered whereas money is endogenous and passive. In post-Keynesian economics, there is an explicit discussion about reconciliation of money demand and supply. Based on careful distinction between money and credit markets, it is argued that monetary disequilibrium can occur even when money is endogenous and therefore money is endogenous and active. This is because of insufficiency of reflux mechanism. The article suggests ways in which new consensus should be supplemented to incorporate this issue. This is also important for monetary policy otherwise a part of transmission mechanism is left out.

A Panel Smooth Transition Regression Model for the Determinants of Inflation Expectations and Credibility in the ECB and the Recent Financial Crisis

This paper studies the determinants of inflation expectations and credibility in the European Central Bank (ECB) during the first decade of European monetary policy. As a measure of credibility we use the gap between the professional economists' inflation forecasts and the ECB's inflation objective. In addition, we investigate whether the main driving factors of inflation expectations and credibility have changed during the recent financial crisis. Within a panel data approach we use Consensus Economics Forecasts in a real-time framework over the period December 2002-May 2010. First, we find that the history of inflation honesty, the forecasts of real GDP growth, M3 growth and the industrial producers' price inflation appear as key determinants of the inflation expectations and the credibility gap in the ECB. Second, within a Panel Smooth Transition Regression (PSTR) modeling we account for a change of regime in the determinants of the inflation forecasts and the credibility in the Central Bank. Finally, we provide new evidence on the impact of the recent non conventional monetary policy operations on the inflation credibility dynamics of the ECB. Using the ratio of Longer-Term Refinancing Operations (LTRO) and the ratio of Securities in the total assets held by the ECB as transition variables, we find that the impact of the key explanatory variables has changed at the onset and at the peak of the financial crisis respectively.

Fiscal variables and bond spreads – evidence from Eastern European countries and Turkey

We investigate the impact of fiscal variables on bond yield spreads relative to US Treasury bonds in the Czech Republic, Hungary, Poland, Russia and Turkey from May 1998 to December 2007. To account for the importance of market expectations we use projected values for fiscal and macroeconomic variables generated from Consensus Economics Forecasts. Moreover, we compare results from panel regressions with those from country (seemingly unrelated regression) estimates. We find that, contrary to the evidence suggested by panel estimations, the role of the individual explanatory variables, including the importance of fiscal variables, varies significantly across countries when using the SUR specification.

Actual Versus Perceived Taylor Rules - How Predictable is the European Central Bank?

This paper investigates the predictability of the European monetary policy through the eyes of the professional forecasters from a large investment bank. The analysis is based on forward-looking Actual and Perceived Taylor Rules for the European Central Bank which are estimated in real-time using a newly constructed database for the period April 2000-November 2009. The former policy rule is based on the actual refi rate set by the Governing Council, while the latter is estimated for the bank's economists using their main point forecast for the upcoming refi rate decision as a dependent variable. The empirical evidence shows that the pattern of the refi rate is broadly well predicted by the professional forecasters even though the latter have foreseen more accurately the increases rather than the policy rate cuts. Second, the results point to an increasing responsiveness of the ECB to macroeconomic fundamentals along the forecast horizon. Third, the rolling window regressions suggest that the estimated coefficients have changed after the bankruptcy of Lehman Brothers in October 2008: the ECB has responded less strongly to macroeconomic fundamentals and the degree of policy inertia has decreased. A sensitivity analysis shows that the baseline results are robust to applying a recursive window methodology and some of the findings are qualitatively unaltered from using Consensus Economics forecasts in the regressions.

The effects of Japanese interventions on FX-forecast heterogeneity

We investigate the determinants of forecast heterogeneity in the JPY/USD market using panel data from Consensus Economics. We find that past exchange-rate volatility increases forecast dispersion, while foreign exchange intervention of the Japanese Ministry of Finance dampens expectation heterogeneity.

A DINÂMICA INFLACIONÁRIA NO NEW CONSENSUS ECONOMICS: UMA ANÁLISE CRÍTICA

A formação de “novos consensos” no campo teórico da economia, tal como o “new Keynesian economics” ou “new neoclassical synthesis”, serve hoje de base teórica para a adoção (ou não) de políticas macroeconômicas, tais como os
 sistemas de metas para a inflação (Inflation Targeting). Este artigo busca apresentar os elementos centrais deste modelo dominante, tanto nos meios acadêmicos como nas práticas dos policy makers, denominado new consensus economics, bem como realizar uma análise crítica das três hipóteses centrais que estão por trás desta formulação e que são utilizadas para racionalizar as proposições do modelo. São elas: (I) a curva de Phillips é estimada com a imposição de neutralidade da moeda no longo prazo; (II) a trajetória do produto potencial é independente das condições de demanda, sendo determinado, no longo prazo, pelas condições de oferta; (III) os choques de oferta são captados pelo componente estocástico. Mostraremos que a dinâmica inflacionária – e o risco iminente de hiperinflação – pode ser muito distinta daquela sugerida pelo “novo consenso” se tais hipóteses forem quebradas.

The Zero Lower Bound: Lessons from the Past Decade

Japan’s encounter with deflation and near‐zero‐interest short‐term interest rates in the 1990s led to a surge in research on the implications of the zero lower bound (ZLB) on nominal interest rates for monetary policy around the end of that decade. Based on model simulations, the literature at that time identified a number of key implications of the ZLB (see Orphanides and Wieland [2000], Reifschneider and Williams [2000, 2002], Eggertsson and Woodford [2003], and references therein). First, with low inflation targets of the kind followed by many central banks, the ZLB will frequently be a binding constraint on monetary policy. That is, Japan’s example is not an outlier but rather a harbinger for the future. Second, at inflation targets of 1% or lower, lowering the inflation target comes at a cost of higher variability of output and inflation, although the effects on inflation variability are relatively small. This analysis provides an argument for maintaining a positive inflation target cushion above 1%. Third, in rare instances of severe prolonged recessions accompanied by deflation, standard open market operations will be insufficient to bring the inflation rate back to target, andalternative sources of stimulus to the economy, such as fiscal policy, will be needed. Fourth, central banks can significantly reduce the effects of the ZLB onmacroeconomic stability by modifying their policy actions and communication to the public when the ZLB threatens to constrain policy. Specifically, policies that cut rates aggressively when deflation is a risk and promise to temporarily target a higher rate of inflation following episodes where the ZLB binds were found to greatly reduce the effects of the ZLB in model simulations. In the decade since this researchwas initiated, the ZLB has gone froma theoretical issue applying to Japan to one that plagues many industrialized economies. Indeed, an era of overwhelming confidence in monetary policy’s power to tame the business cycle while delivering low and stable inflation has been replaced by fears that the global economy could

Estimating open economy Phillips curves for the euro area with directly measured expectations

This paper examines euro-area inflation dynamics by estimating open economy New Keynesian Phillips curves based on the assumption that all imports are intermediate goods. Instead of imposing rational expectations a priori, Consensus Economics survey data and OECD inflation forecasts are used to proxy inflation expectations. The results suggest that, compared with a closed economy New Keynesian Phillips curve, euro-area inflation dynamics are captured better by the open economy specification. Moreover, in the open economy context, even if we allow for persistence in expectations, the hybrid specification of the New Keynesian Phillips curve is needed in order to properly capture the euro-area inflation process.

Disagreement among Forecasters in G7 Countries

Using the Consensus Economics dataset with individual expert forecasts from G7 countries we investigate determinants of disagreement (cross-sectional dispersion of forecasts) about six key economic indicators. Disagreement about real variables (GDP, consumption, investment and unemployment) has a distinct dynamic from disagreement about nominal variables (inflation and interest rate). Disagreement about real variables intensifies strongly during recessions, including the current one (by about 40 percent in terms of the interquartile range). Disagreement about nominal variables rises with their level, has fallen after 1998 or so (by 30 percent), and is considerably lower under independent central banks (by 35 percent). Cross-sectional dispersion for both groups increases with uncertainty about the underlying actual indicators, though to a lesser extent for nominal series. Country-by-country regressions for inflation and interest rates reveal that both the level of disagreement and its sensitivity to macroeconomic variables tend to be larger in Italy, Japan and the United Kingdom, where central banks became independent only around the mid-1990s. These findings suggest that more credible monetary policy can substantially contribute to anchoring of expectations about nominal variables; its effects on disagreement about real variables are moderate.

Fiscal Variables and Bond Spreads: Evidence from Eastern European Countries and Turkey

We investigate the impact of fiscal variables on bond yield spreads relative to US Treasury bonds in the Czech Republic, Hungary, Poland, Russia and Turkey from May 1998 to December 2007. To account for the importance of market expectations we use projected values for fiscal and macroeconomic variables generated from Consensus Economics Forecasts. Moreover, we compare results from panel regressions with those from country (seemingly unrelated regression) estimates, and conduct analogous regressions for a control group of Latin American countries. We find that the role of the individual explanatory variables, including the importance of fiscal variables, varies across countries.

The accuracy and efficiency of the Consensus Forecasts: A further application and extension of the pooled approach

This paper analyses the performance of consensus forecasts, published by Consensus Economics, for 12 countries over the period from 1996 to 2006 regarding bias and information efficiency. A pooled approach is employed which permits the evaluation of all forecasts for each target variable over 24 horizons simultaneously. It is shown how the pooled approach needs to be set up in order to accommodate the forecasting scheme of the consensus forecasts. Furthermore, the pooled approach is extended by a sequential test for detecting the critical horizon after which the forecast should be regarded as biased. Moreover, heteroscedasticity in the form of target-year-specific variances of macroeconomic shocks is taken into account. The results show that in the analysed period, which was characterised by pronounced macroeconomic shocks, several countries show biased forecasts, especially with forecast horizons of more than 12 months. In addition, information efficiency has to be rejected in almost all cases.

Taylor Rules for the ECB using Expectations Data*

AbstractWe estimate Taylor rules for the euro area using Consensus Economics data for expected inflation and output growth, and compare these estimates with more conventional specifications in which actual outcomes are used. We find that the ECB takes expected inflation and expected output growth into account in setting interest rates, while in the more conventional model specification, the coefficient of realized inflation is not significantly different from zero.

Review of: Batchelor, Roy (2001), "How Useful are the Forecasts of Intergovernmental Agencies? The Imf And OECD Versus the Consensus"

Substantial resources are devoted to forecasting macroeconomic series by the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD). Forecasts for these series are also available from many private sources. For example, Consensus Economics, an English firm, combines forecasts from 10 to 30 private sector forecasts for each country. Batchelor asks whether the IMF and OECD, with their statistics and highly qualified analysts, might contribute to forecast accuracy beyond what is offered by private firms. Batchelor used a two-tailed significance test on whether these forecasts do better than the consensus. He examined forecasts for the G7 countries for seven years (1990-1996) using three starting points for each year for six variables. In all, there were comparisons for 1,200 forecasts. Using the Mean Absolute Errors, the consensus forecasts were superior to the OECD and IMF forecasts on 23 of 27 comparisons (summarized by variable by starting month). On average, the combined forecast error was 9.6% less than the IMF forecast and 8.1% less than the OECD forecast. These gains are in line with the estimate that combining will reduce the error by about 12% versus a single component forecast (Armstrong 2001). Batchelor then examined whether the Consensus Forecasts would be improved through the addition of the OECD and IMF forecasts. It was not, which is not surprising given the large number of forecasts included in the combined forecasts; the results for combining suggest that the gains in accuracy from adding forecasts become small after one has combined five forecasts (Armstrong 2001).

Estimating Open Economy Phillips Curves for the Euro Area with Directly Measured Expectations

This paper examines euro area inflation dynamics by estimating open economy New Keynesian Phillips curves based on the assumption that all imports are intermediate goods. Instead of imposing rational expectations a priori, Consensus Economics survey data and OECD inflation forecasts are used to proxy inflation expectations. The results suggest that, compared with a closed economy New Keynesian Phillips curve, euro area inflation dynamics are better captured by the open economy specification. Moreover, in the open economy context, and even if we allow for persistence in expectations, the hybrid specification of the New Keynesian Phillips curve is needed in order to capture the euro area inflation process properly. We also provide some evidence that in recent years of low and stable inflation, euro area inflation dynamics have become more forward-looking and the link between inflation and domestic demand has weakened (ie the euro area Phillips curve has flattened). On the other hand, in low-inflation euro area countries the inflation process seems to have been more forward-looking already since the early 1980s.

Accuracy and Properties of German Business Cycle Forecasts

In this paper the accuracy of a wide range of German business cycle forecasters is assessed for the period from 1995 to 2005. For this purpose, a data set is used comprising forecasts published on a monthly basis by Consensus Economics. The application of several descriptive as well as statistical measures reveals that the accuracy of the 2-years forecasts is low relative to a simple naïve forecast. This observation can mainly be explained by a systematic overestimation of the growth rates by the forecasters. Moreover, the lack of accuracy can also be explained partly by insufficient information efficiency as well as imitation behaviour. Finally, it is shown that notwithstanding the common errors which affected the accuracy of all forecasters mainly because of their systematic overestimation, they differ significantly in their forecast accuracy.

Estimating a Small DSGE Model under Rational and Measured Expectations: Some Comparisons

Using European panel data and GMM system estimation, we explore the empirical performance of the standard three-equation New Keynesian macro model under different informational assumptions. As a benchmark, we consider the performance of the model under rational expectations and revised (final) data. Alternatively, instead of imposing rational expectations hypothesis we use realtime information, ie Consensus Economics survey data, to generate empirical proxies for expectations in the model and the current output gap in the Taylor rule. We demonstrate that, contrary to the assumption of rational expectations, the errors in measured expectations and real-time current output gaps are positively autocorrelated. We produce evidence that the use of real-time variables (including measured expectations) improves the empirical performance of the New Keynesian model. Relaxation of the rational expectations hypothesis makes a noticeable difference for the parameters of the New Keynesian model, especially in the Taylor rule.

Comparing alternative Phillips curve specifications: European results with survey-based expectations

This article examines inflation dynamics in Europe. Econometric specification tests with pooled European data are used to compare the empirical performance of the New Classical, New Keynesian and Hybrid specifications of the Phillips curve. Instead of imposing any specific form of expectations formation, direct measures, i.e. Consensus Economics survey data are used to proxy economic agents’ inflation expectations. According to the results, the New Classical Phillips curve has satisfactory statistical properties. Moreover, the purely forward-looking New Keynesian Phillips curve is clearly outperformed by the New Classical and Hybrid Phillips curves. We interpret our results as indicating that the European inflation process is not purely forward looking and inflation cannot instantaneously adjust to changes in expectations. Consequently, even allowing for possible nonrationality in expectations results in a lagged inflation term entering the New Keynesian Phillips curve for inflation dynamics in Europe.

An Evaluation of the World Economic Outlook Forecasts

This paper conducts a series of statistical tests to evaluate the quality of the World Economic Outlook (WEO) forecasts for a very large cross section of countries. It assesses whether forecasts were unbiased and informationally efficient, characterizes the process whereby WEO forecasts get revised as the predicted period draws closer, and compares the precision of the WEO forecasts to private sector forecasts known as “consensus forecasts” and published by Consensus Economics on a monthly basis. The results suggest that the performance of the WEO forecasts is similar to that of the consensus forecasts.

How far ahead can we forecast? Evidence from cross-country surveys

Using monthly GDP forecasts from Consensus Economics, Inc. for 18 developed countries, reported over 24 different forecast horizons during the period 1989–2004, we find that the survey forecasts do not have much value when the horizon goes beyond 18 months. Using two alternative approaches to measure the flow of new information in fixed-target survey forecasts, we find that the biggest improvement in forecasting performance comes when the forecast horizon is around 14 months. The dynamics of information accumulation over forecast horizons can provide both the forecasters and their clients with an important clue in their selection of the timing and frequency in the use of forecasting services. The limits to forecasting that these private market forecasters exhibit are indicative of the current state of macroeconomic foresight.

Bias in macroeconomic forecasts

This paper documents the presence of systematic bias in the real GDP and inflation forecasts of private sector forecasters in the G7 economies in the years 1990–2005. The data come from the monthly Consensus Economics forecasting service, and bias is measured and tested for significance using parametric fixed effect panel regressions and nonparametric tests on accuracy ranks. We examine patterns across countries and forecasters to establish whether the bias reflects the inefficient use of information, or whether it reflects a rational response to financial, reputational and other incentives operating for forecasters. In several G7 countries – Japan, Italy, Germany and France – there is evidence of a change in the trend growth rate. In these circumstances, standard tests for rationality are inappropriate, and a bias towards optimism in the consensus forecast is inevitable as rational forecasters learn about the new trend. In all countries there is evidence that individual forecasters converge on the consensus forecast too slowly. However, the persistent optimism of some forecasters, and the persistent pessimism of others, is not consistent with the predictions of models of “rational bias” that have become popular in the finance and economics literature.