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How good are banks' forecasts?

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  • Heckmann, Lotta
  • Memmel, Christoph

Abstract

We analyse the ftnancial forecasts small and medium-sized German banks provided in several waves of a quantitative survey, called LIRES, and compare them with the results the banks actually realized. Based on this unique data set, we ftnd that the predictions are relevant, especially concerning the net interest income for the next year, and persistent, but neither unbiased nor rational. We also ftnd slight evidence for a positive relationship between planning and performance, i.e. banks whose predictions are more accurate tend to have a higher return on assets. Looking at the forecasts made just before the end of the low-interest rate environment, we observe that the explanatory power of predictions went down.

Suggested Citation

  • Heckmann, Lotta & Memmel, Christoph, 2024. "How good are banks' forecasts?," Discussion Papers 03/2024, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:283008
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    References listed on IDEAS

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    1. Armstrong, J. Scott, 1983. "Strategic Planning and Forecasting Fundamentals," MPRA Paper 81682, University Library of Munich, Germany.
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    More about this item

    Keywords

    Forecasts; Banks; Quantitative Survey (LIRES);
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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