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The term structure of judgement: interpreting survey disagreement

Author

Listed:
  • Federica Brenna

    (Bank of Lithuania and Vilnius University)

  • Zymantas Budrys

    (Bank of Lithuania and Vilnius University)

Abstract

Consensus forecasts by professionals are highly accurate, yet hide large heterogeneity. We develop a framework to extract the judgement component from survey forecasts and analyse the extent to which it contributes to respondents’ disagreement. For the average respondent, we find a substantial contribution of judgement about the current quarter, which often steers unconditional forecasts towards the realisation, thereby improving accuracy. We identify the structural components of judgement by exploiting stochastic volatility and give an economic interpretation to expected future shocks. For individual respondents, just over one-third of the disagreement is due to differences in the coefficients or models used, and the remainder is due to different assessments of future shocks; the latter mostly concerns the size of the shocks, while there is general agreement on their source.

Suggested Citation

  • Federica Brenna & Zymantas Budrys, 2024. "The term structure of judgement: interpreting survey disagreement," Bank of Lithuania Working Paper Series 123, Bank of Lithuania.
    • Handle: RePEc:lie:wpaper:123
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    More about this item

    Keywords

    Expectations Formation; Identification via Stochastic Volatility; Judgement; Survey of Professional Forecasters;
    All these keywords.

    JEL classification:

    • 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
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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