Abstract
We analyse forecasts of professional forecasters for Germany regarding the time span from 1970 to 2004. This novel panel data set renders it possible to assess the accuracy and efficiency of growth and inflation forecasts more efficiently than in previous studies. We argue that the forecasts are, on average, unbiased and weakly—but not strongly—efficient. Using model confidence sets suggested by Hansen et al. (2004), we find that, besides the effect of diverging forecasting dates, no other substantial differences in forecasting quality among forecasters exist. Nevertheless, on the basis of a direction-of-change analysis we argue that it is not always advisable to listen to the majority of forecasters.
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Notes
This is also the reason why some institutions appear twice in our data set, while others do not. In some other cases (e.g. the Kiel institute), the forecasting frequency has also changed over time from twice a year to four times a year.
This choice is motivated by the “headline figure” of the statistical office for the respective year. Note, however, that the forecasts frequently refer to “growth” rather than explicitly to either GDP or GNP or to one figure only. In such cases, we have assumed that the forecasters made no distinction between the concepts and had the same forecast for both figures.
The data used in this study may be downloaded from http://www.ulrich-fritsche.net.
Unless otherwise stated, our notation follows the textbook of Diebold (1998).
The exogenous variables were standardised to avoid biases in the estimation of the constant.
Note that we treat the inflation rate as a stationary variable. We base this judgement on a standard test for unit roots, which are not presented in the paper, but available upon request from the authors.
We are grateful to Peter Reinhard Hansen and Asgar Lunde, who helped to calculate the respective MCS and p-values.
Again, the result for the IWH has to be interpreted with caution since we only have 12 exploitable observations.
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Acknowledgements
The authors wish to thank two anonymous referees as well as Imke Brüggemann, Andreas Cors, Roland Döhrn, Felix Hüffner, Hans-Martin Krolzig, Thomas Knetsch, Udo Ludwig, Francis Piotrowski, Jürgen Wolters, Rudolf Zwiener and seminar participants at the Institute for Statistics and Econometrics at the Free University Berlin for their helpful comments on an earlier draft of this paper. We also wish to thank Birger Antholz, Hamburg, for pointing us to errors in our data and for providing us with additional data. We are particularly grateful to Peter Reinhard Hansen and Asgar Lunde, who used their procedures to calculate the relevant MCS and p-values for us. The usual disclaimer applies. The views presented in this paper are the authors’, and do not necessarily reflect those of the DIW Berlin or the Deutsche Bundesbank.
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Appendix
Appendix
Institutions and forecasts under investigation
Institution | Source of forecast | Start/ending dates of forecasts | Average month until end of forecast horizon | Additional notes |
|---|---|---|---|---|
Council of Economic Advisors | Sachverständigenrat, annual reports, several years, Wiesbaden | 1970–2004 | 13 | |
Joint forecast of the six (formerly five) “leading” German economic research institutes, autumn forecast | Arbeitsgemeinschaft wirtschaftswissenschaftlicher Forschungsinstitute, various issues, Berlin | 1970–2004 | 14 | |
Joint forecast of the six (formerly five) “leading” German economic research institutes, autumn forecast | Arbeitsgemeinschaft wirtschaftswissenschaftlicher Forschungsinstitute, various issues, Berlin | 1970–2004 | 8 | |
German Institute of Economic Research (DIW Berlin) | German Institute of Economic Research (ed), Economic Bulletin, various issues, Berlin | 1970–2004 | 11 | Two forecasts per year; we refer to the one in January only |
Kiel Institute for World Economics (IfW) | “Die Weltwirtschaft”, various issues, Kiel | 1970–2004 | 12 | No forecasts for 1975 and 1976 (see Stege (1989)) for a discussion of possible reasons). We use numbers from the joint forecast for these years, since the Kiel Institute was part of the joint forecast. For forecasts, we use the December forecast. |
HWWA Institute of Economic Research, Hamburg | “Wirtschaftsdienst”, various issues, Hamburg | 1970–2004 | 12 | Two forecasts per year, we refer to the autumn forecast. |
Ifo Institute, Munich | “ifo Schnelldienst”, various issues | 1970–2004 | 12 | |
Institute for Economic Research Halle (IWH) | “Wirtschaft im Wandel”, various issues, Halle/Saale | 1993–2004 | 11 | Institute founded in 1992 |
Rhine-Westphalia Institute for Economic Research (RWI), Essen | Institute’s “Economic report” | 1970–2004 | 11 | |
OECD | Economic Outlook, various issues, Paris | 1970–2004 | 13 | Two forecasts, we use the autumn forecast. |
IMF, spring forecast | World Economic Outlook, various issues, Washington | 1974–2004 | 9 | Some forecasts have not been published. Here we use the data collected by Artis (1987). |
IMF, autumn forecast | World Economic Outlook, various issues, Washington | 1974–2004 | 15 | Some forecasts have not been published. In this cases we use the data collected by Artis (1987). |
European Commission, spring forecast | European Economy, various issues, Brussels | 1974–2004 | 9 | |
European Commission, autumn forecast | European Economy, various issues, Brussels | 1974–2004 | 14 | |
Trade Union Institute (WSI) | WSI Mitteilungen, various issues, Düsseldorf | 1974–2004 | 12 | In 2001 no growth forecast and in 2001 and 2002 no inflation forecasts. |
Institute of the German Economy (IW) | IW-Trends; various issues, Cologne | 1970–2004 | 13 | |
Economic report of the German federal government | Jahreswirtschaftsbericht, various issues, Bonn/Berlin | 1970–2004 | 10 |
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Döpke, J., Fritsche, U. Growth and inflation forecasts for Germany a panel-based assessment of accuracy and efficiency. Empirical Economics 31, 777–798 (2006). https://doi.org/10.1007/s00181-005-0050-5
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DOI: https://doi.org/10.1007/s00181-005-0050-5