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Rounding bias in forecast uncertainty

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  • Levenko, Natalia

Abstract

The European Survey of Professional Forecasters (SPF) is a dataset that is widely used to derive measures of forecast uncertainty. Participants in the SPF provide not only point estimates but also density forecasts for key macroeconomic variables. The mean individual variance, defined as the average of the variances of individual forecasts, shifted up during the Great Recession and has remained elevated since the crisis. The paper seeks to explain this puzzling lack of countercyclicality by applying a smooth transition analysis on data from the European SPF. The analysis indicates that the mean individual variance is a function of the modelling preferences of forecasters and consequently shifts in individual variance are likely to be misleading for the actual changes in the perceived uncertainty. The results remain robust after potential endogeneity has been accounted for.

Suggested Citation

  • Levenko, Natalia, 2020. "Rounding bias in forecast uncertainty," Research in Economics, Elsevier, vol. 74(4), pages 277-291.
    • Handle: RePEc:eee:reecon:v:74:y:2020:i:4:p:277-291
    DOI: 10.1016/j.rie.2020.08.001
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    1. Liu, Congzheng & Letchford, Adam N. & Svetunkov, Ivan, 2022. "Newsvendor problems: An integrated method for estimation and optimisation," European Journal of Operational Research, Elsevier, vol. 300(2), pages 590-601.

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    More about this item

    Keywords

    Survey uncertainty; Density forecasts; Surveys of professional forecasters; Simulations; Smooth transition; Instrumental variables;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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