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Forecast Performance in Times of Terrorism

Author

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  • Jonathan Benchimol

    (Bank of Israel)

  • Makram El-Shagi

    (Henan University, Kaifeng, China)

Abstract

Abstra​ct Governments, central banks, and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, a factor that should be considered by decision-makers. We focus on terrorism as a mostly endogenously driven form of political uncertainty and assess the forecasting performance of market-based and professional inflation and exchange rate forecasts in Israel. We show that expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, the performance of both market-based and expert forecasts is significantly worse during such periods. Thus, policymakers should be particularly attentive to terrorism when considering inflation and exchange rate forecasts.

Suggested Citation

  • Jonathan Benchimol & Makram El-Shagi, 2019. "Forecast Performance in Times of Terrorism," Bank of Israel Working Papers 2019.08, Bank of Israel.
  • Handle: RePEc:boi:wpaper:2019.08
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    1. Y a-t-il un lien entre les prévisions économiques et les actes terroristes ?
      by john in Economie & Finance on 2017-12-24 20:19:23

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    1. Benchimol, Jonathan & El-Shagi, Makram & Saadon, Yossi, 2022. "Do expert experience and characteristics affect inflation forecasts?," Journal of Economic Behavior & Organization, Elsevier, vol. 201(C), pages 205-226.
    2. Liu, Yiye & Han, Liyan & Wu, You & Yin, Libo, 2022. "Do terrorist attacks matter for currency excess returns?," Finance Research Letters, Elsevier, vol. 49(C).
    3. El-Shagi, Makram, 2019. "Rationality tests in the presence of instabilities in finite samples," Economic Modelling, Elsevier, vol. 79(C), pages 242-246.
    4. Timothy Wilson & Ilan Noy, 2023. "Fifty years of peril: A comprehensive comparison of the impact of terrorism and disasters linked to natural hazards (1970–2019)," Global Policy, London School of Economics and Political Science, vol. 14(5), pages 647-662, November.

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    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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