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All Forecasters Are Not the Same: Time-Varying Predictive Ability across Forecast Environments

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  • Robert W. Rich
  • Joseph Tracy

Abstract

This paper examines data from the European Central Bank’s Survey of Professional Forecasters to investigate whether participants display equal predictive performance. We use panel data models to evaluate point- and density-based forecasts of real GDP growth, inflation, and unemployment. The results document systematic differences in participants’ forecast accuracy that are not time invariant, but instead vary with the difficulty of the forecasting environment. Specifically, we find that some participants display higher relative accuracy in tranquil environments, while others display higher relative accuracy in volatile environments. We also find that predictive performance is positively correlated across target variables and horizons, with density forecasts generating stronger correlation patterns. Taken together, the results support the development of expectations models featuring persistent heterogeneity.

Suggested Citation

  • Robert W. Rich & Joseph Tracy, 2021. "All Forecasters Are Not the Same: Time-Varying Predictive Ability across Forecast Environments," Working Papers 21-06, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:90000
    DOI: 10.26509/frbc-wp-202106
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    References listed on IDEAS

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    1. Olivier Coibion & Yuriy Gorodnichenko, 2012. "What Can Survey Forecasts Tell Us about Information Rigidities?," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 116-159.
    2. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1295-1328.
    3. Antonello D’Agostino & Kieran Mcquinn & Karl Whelan, 2012. "Are Some Forecasters Really Better Than Others?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(4), pages 715-732, June.
    4. Kenny, Geoff & Genre, Véronique & Bowles, Carlos & Friz, Roberta & Meyler, Aidan & Rautanen, Tuomas, 2007. "The ECB survey of professional forecasters (SPF) - A review after eight years' experience," Occasional Paper Series 59, European Central Bank.
    5. Meyler, Aidan, 2020. "Forecast performance in the ECB SPF: ability or chance?," Working Paper Series 2371, European Central Bank.
    6. Batchelor, R A, 1990. "All Forecasters Are Equal," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 143-144, January.
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    Cited by:

    1. Glas, Alexander & Heinisch, Katja, 2021. "Conditional macroeconomic forecasts: Disagreement, revisions and forecast errors," IWH Discussion Papers 7/2021, Halle Institute for Economic Research (IWH).
    2. Glas, Alexander & Heinisch, Katja, 2023. "Conditional macroeconomic survey forecasts: Revisions and errors," Journal of International Money and Finance, Elsevier, vol. 138(C).
    3. Strunz, Franziska & Gödl, Maximilian, 2023. "An Evaluation of Professional Forecasts for the German Economy," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277707, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    professional forecasters; survey data; forecast accuracy; point forecasts; density forecasts; persistent heterogeneity;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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