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Is the Cycle the Trend? Evidence From the Views of International Forecasters

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  • Mr. John C Bluedorn
  • Mr. Daniel Leigh

Abstract

We revisit the conventional view that output fluctuates around a stable trend by analyzing professional long-term forecasts for 38 advanced and emerging market economies. If transitory deviations around a trend dominate output fluctuations, then forecasters should not change their long-term output level forecasts following an unexpected change in current period output. By contrast, an analysis of Consensus Economics forecasts since 1989 suggest that output forecasts are super-persistent—an unexpected 1 percent upward revision in current period output typically translates into a revision of ten year-ahead forecasted output by about 2 percent in both advanced and emerging markets. Drawing upon evidence from the behavior of forecast errors, the persistence of actual output is typically weaker than forecasters expect, but still consistent with output shocks normally having large and permanent level effects.

Suggested Citation

  • Mr. John C Bluedorn & Mr. Daniel Leigh, 2018. "Is the Cycle the Trend? Evidence From the Views of International Forecasters," IMF Working Papers 2018/163, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2018/163
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    2. Augustus J. Panton, 2020. "Climate hysteresis and monetary policy," CAMA Working Papers 2020-76, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Mirko Abbritti & Mr. Sebastian Weber, 2019. "Market Regulation, Cycles and Growth in a Monetary Union," IMF Working Papers 2019/123, International Monetary Fund.
    4. Fornaro, Luca & Wolf, Martin, 2023. "The scars of supply shocks: Implications for monetary policy," Journal of Monetary Economics, Elsevier, vol. 140(S), pages 18-36.
    5. Narek Ghazaryan, 2014. "Short Term Forecasting System of Private Demand Components in Armenia," Working Papers 3, Central Bank of the Republic of Armenia, revised Dec 2015.
    6. Michael P. Clements, 2022. "Individual forecaster perceptions of the persistence of shocks to GDP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(3), pages 640-656, April.
    7. Clements, Michael P., 2024. "Do professional forecasters believe in the Phillips curve?," International Journal of Forecasting, Elsevier, vol. 40(3), pages 1238-1254.
    8. Clements, Michael P., 2024. "Survey expectations and adjustments for multiple testing," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 338-354.
    9. Valerie Cerra & Antonio Fatás & Sweta C. Saxena, 2023. "Hysteresis and Business Cycles," Journal of Economic Literature, American Economic Association, vol. 61(1), pages 181-225, March.
    10. Danilo Cascaldi-Garcia, 2022. "Forecast Revisions as Instruments for News Shocks," International Finance Discussion Papers 1341, Board of Governors of the Federal Reserve System (U.S.).
    11. Ali Alichi & Hayk Avetisyan & Douglas Laxton & Shalva Mkhatrishvili & Armen Nurbekyan & Lusine Torosyan & Hou Wang & Armen Nurbekyan & Lusine Torosyan, 2019. "Multivariate Filter Estimation of Potential Output for the United States: An Extension with Labor Market Hysteresis," Working Papers 9, Central Bank of the Republic of Armenia, revised Aug 2019.
    12. Hadzi-Vaskov, Metodij & Ricci, Luca Antonio & Werner, Alejandro & Zamarripa, Rene, 2021. "Patterns in IMF Growth Forecast Revisions: A Panel Study at Multiple Horizons," CEPR Discussion Papers 16153, C.E.P.R. Discussion Papers.
    13. Mr. John C Bluedorn & Mr. Daniel Leigh, 2019. "Hysteresis in Labor Markets? Evidence from Professional Long-Term Forecasts," IMF Working Papers 2019/114, International Monetary Fund.
    14. Mr. Geoffrey J Bannister & Mr. Harald Finger & Siddharth Kothari & Ms. Elena Loukoianova, 2020. "Addressing the Pandemic's Medium-Term Fallout in Australia and New Zealand," IMF Working Papers 2020/272, International Monetary Fund.

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