Measuring and testing the long-term impact of terrorist attacks on the US futures market

This study compares the accuracy and information content of economic forecasts for G7 countries made in the 1990s by the OECD and IMF. The benchmarks for comparison are the average forecasts of private sector economists published by Consensus Economics. With few exceptions, the private sector forecasts are less biased and more accurate in terms of mean absolute error and root mean square error. Formal tests show these differences are statistically significant for forecasts of real growth and production, less so for forecasts of inflation and unemployment. Overall, there appears little information in the OECD and IMF forecasts that could be used to reduce significantly the error in the private sector forecasts.     

On the accuracy of Federal Reserve forecasts of the budget deficit-output ratio

Monetary authorities, while unable to resolve fiscal imbalances, have to deal with their consequences in formulating monetary policy. This article asks whether the Federal Open Market Committee (FOMC) is provided with accurate forecasts of the federal budget deficit-output ratio. We show that the forecasts made in the period 1982 to 2002 are unbiased with useful predictive information above that contained in time-series forecasts.     

Do the OECD 24 month horizon growth forecasts for the G7–countries contain information?

The OECD produces two–year–ahead growth forecasts for the G7–countries since 1987; these forecasts have never been evaluated. A regression is developed that tests for the information content of the forecasts. The idea is that this content is the added value forecasters incorporate in their forecasts. The information content is defined relative to the forecast for the previous year. In the end, the added value contained in the current year forecast is calculated relative to the last observation. The test consists in checking whether the information content reduces the forecasts error.

The study begins with a calculation of the usual accuracy statistics. These indicate an extreme low quality for the forecasts. The regression tests support this conclusion although the forecasts for Japan do possess some information. Alarming for users of forecasts is that there are no obvious alternatives.     

An Examination of the Quality of Jobs in the Call Center Industry

This paper examines jobs in the information society and the new economy, taking as its focus the call center industry. More specifically, the study analyzes the degree of variability of the quality of call center jobs. In order to achieve this objective, an index of job quality is generated, and an empirical analysis of the characteristics of jobs in call centers is carried out. This allows us to determine the level and variability of quality of jobs in this sector and to establish whether the reality of these jobs is as good as the forecasts for work in the new economy.      

Forecasting the Australian economy with DSGE and BVAR models

Reflecting the importance of commodities for the Australian economy, we construct a dynamic stochastic general equilibrium (DSGE) model of the Australian economy with a commodity sector. We assess whether its forecasts can be improved by using it as a prior for an empirical Bayesian vector autoregression (BVAR). We find that the forecasts from the BVAR tend to be more accurate than those from the DSGE model. Nevertheless, for output growth these forecasts do not outperform benchmark models, such as a small open economy BVAR estimated using the standard priors for forecasting. A Bayesian factor augmented vector autoregression produces the most accurate near-term inflation forecasts.     

Forecasting stock market volatility: The role of technical variables

Accurate volatility forecasts are required by both market participants and policy makers. In this paper, we forecast stock return volatility by using a wide range of technical indicators constructed based on the past behavior of stock price, volatility and trading volume. Our out-of-sample results indicate that the incorporation of technical variables in the autoregression benchmark can produce significantly more accurate volatility forecasts. The forecasting performance of the combination of technical indicators is further compared with that of the popular economic indicators. Technical variables perform better than economic variables when the economy is an expansion, while the economic variables generate more accurate forecasts when the economy belongs a recession. These two types of variables provide complementary information over the business cycle. We obtain more reliable forecasts by combining all economic and technical information together than by combining either type of information alone.     

Asymmetric Loss and the Rationality of Inflation Forecasts: Evidence from South Korea

We examine asymmetry in the loss functions of South Korean consumers' and the Bank of Korea's (BOK) inflation forecasts, and test the rationality of these forecasts under the assumption of a possible asymmetric loss function. Under an asymmetric loss function, we find evidence of asymmetry and support for rationality. We also examine whether the BOK's forecasts incorporate respective forecasts and consensus forecasts efficiently. They broadly use available information efficiently, and their results are robust to inflation‐targeting measures and the recent global financial crisis. However, our results suggest that the information efficiency of the BOK's forecasts for consumers was affected during the period 2007–2008.     

Probability forecast of downturn in U.S. economy using classical statistical decision theory

This paper presents a methodology for producing a probability forecast of a turning point in U.S. economy using Composite Leading Indicators. This methodology is based on classical statistical decision theory and uses information-theoretic measurement to produce a probability. The methodology is flexible using as many historical data points as desired. This methodology is applied to producing probability forecasts of a downturn in U.S. economy in the 1970–1990 period. Four probability forecasts are produced using different amounts of information. The performance of these forecasts is evaluated using the actual downturn points and the scores measuring accuracy, calibration, and resolution. An indirect comparison of these forecasts with Diebold and Rudebusch's sequential probability recursion is also presented. It is shown that the performances of our best two models are statistically different from the performance of the three-consecutive-month decline model and are the same as the one for the best probit model. The probit model, however, is more conservative in its predictions than our two models.     

Forecasting Housing Approvals in Australia: Do Forecasters Herd?

Price trends in housing markets may reflect herding of market participants. A natural question is whether such herding, to the extent that it occurred, reflects herding in forecasts of professional forecasters. Using more than 6,000 forecasts of housing approvals for Australia, we did not find evidence of forecaster herding. On the contrary, forecasters anti‐herd and, thereby, tend to intentionally scatter their forecasts around the consensus forecast. The extent of anti‐herding seems to vary over time. We also found that more pronounced anti‐herding leads to less accurate forecasts.     

Central bank forecasts and private expectations: An empirical assessment from three emerging economies

As part of their monetary policy strategy, many central banks are attempting to manage private sector expectations about key macroeconomic variables. In this article, we investigate whether forecasts provided by central banks in three inflation targeting emerging economies (Brazil, Mexico, and Poland) affect the expectations of private forecasters. In particular, we analyze whether the disagreement between the central bank and private sector forecasts applies to explain changes in private sector expectations regarding inflation and economic growth. The findings show that while central bank forecasts are higher than those made by private sector forecasters, the result is an update upwards of private forecasts and that this effect is stronger for GDP growth forecasts than for inflation forecasts.     

Inefficiency in Earnings Forecasts: Experimental Evidence of Reactions to Positive vs. Negative Information

Prior archival studies of analysts' forecasts have found evidence for systematic underreaction, systematic overreaction, and systematic optimism bias. Easterwood and Nutt (1999) attempt to reconcile the conflicting evidence by testing the robustness of Abarbanell and Bernard's (1992) underreaction results to the nature of the information. Consistent with systematic optimism, forecasts are found to underreact to negative earnings information but overreact to positive information. However, Easterwood and Nutt are unable to distinguish between misreaction caused by incentives unique to analysts with misreaction caused by human decision bias that may be typical of investors. We address this issue by analyzing forecast reactions to positive versus negative information in the controlled experimental setting of Gillette, Stevens, Watts, and Williams (1999). The forecast data reveal systematic underreaction to both positive and negative information, and the underreaction is generally greater for positive information than negative information. This suggests that prior empirical evidence of forecast overreaction to positive information is unlikely to be attributable to human decision bias.     

Rational expectations and fixed-event forecasts: An application to UK inflation

This paper tests a version of the rational expectations hypothesis using ‘fixed-event’ inflation forecasts for the UK. Fixed-event forecasts consist of a panel of forecasts for a set of outturns of a series at varying horizons prior to each outturn. The forecasts are the prediction of fund managers surveyed by Merrill Lynch. Fixed-event forecasts allow tests for whether expectations are unbiased in a similar fashion to the rest of the literature. But they also permit the conduct of particular tests of forecast efficiency - whether the forecasts make best use of available information - that are not possible with rolling-event data. We find evidence of a positive bias in inflation expectations. Evidence for inefficiency is much less clear cut.First version received: June 2002/ Final version received: November 2003We would like two anonymous referees and an editor for comments that have significantly improved the paper. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of England.     

Do production managers predict turning points? A directional analysis

This study evaluates the directional accuracy of production managers' forecasts by using a new market-timing test. By extending the directional analysis to the 4 × 4 case, this study investigates whether Japanese production managers' forecasts correctly predict turning points in production across different industries. This fills a gap in the literature that focused on predicting increase/decrease or acceleration/deceleration using directional analysis of the 2 × 2 case. It also illustrates its merit over the 2 × 2 case. This study shows that majority of the forecasts are not useful in predicting turning points in production; however, they are useful in predicting increase/decrease in production. Our findings suggest that the production managers' forecasts serve as early qualitative information of expansion and contraction on the Japanese economy and their accuracy does not differ by phases of business cycles.     

Evaluating strange forecasts: The curious case of football match scorelines

This study analyses point forecasts of exact scoreline outcomes for football matches in the English Premier League. These forecasts were made for distinct competitions and originally judged differently. We compare these with implied probability forecasts using bookmaker odds and a crowd of tipsters, as well as point and probability forecasts generated from a statistical model. From evaluating these sources and types of forecast, using various methods, we argue that regression encompassing is the most appropriate way to compare point and probability forecasts, and find that both these types of forecasts for football match scorelines generally add information to one another.     

Monitoring and forecasting annual public deficit every month: the case of France

In this paper we forecast annual budget deficits using monthly information. Using French monthly data on central government revenues and expenditures, the method we propose consists of: (1) estimating monthly ARIMA models for all items of central government revenues and expenditures; (2) inferring the annual ARIMA models from the monthly models; (3) using the inferred annual ARIMA models to perform one-step-ahead forecasts for each item; (4) compounding the annual forecasts of all revenues and expenditures to obtain an annual budget deficit forecast. The major empirical benefit of this technique is that as soon as new monthly data become available, annual deficit forecasts are updated. This allows us to detect in advance possible slippages in central government finances. For years 2002–2004, forecasts obtained following the proposed approach are compared with a benchmark method and with official predictions published by the French government. An evaluation of their relative performance is provided.      

Currency demand and the growth of the underground economy in Canada, 1991-1995

The extent to which the recent introduction of a value-added tax in Canada contributed to the growth of the underground economy remains controversial. If underground economy growth led to increased currency holdings and shifted the currency demand function, forecasts for the period after the introduction of the tax should tend to underestimate currency holdings. Using a cointegration-based error correction mechanism in vector autoregression models, currency demand is estimated using quarterly data for 1968–1990 and dynamic forecasts are made for 1991–1995. On average, currency demand is underpredicted, but by a small amount. The results are consistent with an increase in the underground economy of between 0.01 and 0.3% of GDP as a result of the new tax. If changes in marginal direct tax rates are considered, the underground economy may have grown between 0.1 and 0.7% of GDP in 1991–1995.     

The information content of the Reserve Bank of Australia's inflation forecasts

In this article, the inflation forecasts produced by the Reserve Bank of Australia (RBA) and that generated by private forecasters, are used to assess whether the Reserve Bank possesses information about inflation that the private sector does not have. The results show that the Reserve Bank inflation forecasts embody useful predictive information about inflation, beyond that contained in private forecasts, over the recent inflation targeting period.     

PUBLIC CAPITAL, PRODUCTIVE EFFICIENCY AND CONVERGENCE IN THE SPANISH REGIONS (1964–93)

This paper analyses the behaviour of productive efficiency in the Spanish regions for the period 1964–93. From a growth accounting approach, it describes the regional evolution of total factor productivity (TFP'), based on a private inputs production function. A stricter measure of efficiency is then quantified, which is not equivalent to Solow's residual, since public capital is included in the production function and constant returns to scale are not imposed. Finally, on the basis of the measures of total factor productivity and efficiency, the study discusses the existence of technological convergence among Spanish regions and the role played in it by public capital. The renewed interest in the analysis of the process of growth reflected in economic literature in recent years has also occurred in the case of the Spanish economy, with some peculiarities which are worth mentioning. In the 1980s, two important institutional changes took place: a profound political and administrative decentralization, the regions now being autonomous in many decisions on public expenditure, and the incorporation of Spain into the European Community, which as it is well known has a powerful regional policy. Both changes have meant that the analysis of regional economies, and especially their growth paths, have received much more attention from politicians and economists, and even from the population in general. In particular, intense discussion has taken place regarding the effects of development policies and on criteria for geographical distribution of infrastructures. In both cases, much attention has been paid to discussing their capacity to contribute to convergence among the different regions. As a consequence of this greater interest in the analysis of growth from a regional perspective, efforts have also been made to improve the relevant statistical information. In particular, statistical series have been drawn up for investment and accumulated capital stock in each region, both private and public.' This information, only recently available and the first of its kind, as far as we know, in the European regions, substantially broadens the possibilities of research into the Spanish case in this field, where before not even the simplest exercises in growth accounting could be attempted. Further-more, since the series now available allow the time dimension of growth analysis to be combined with the regional dimension, it is possible to work with a panel of data and apply the corresponding techniques. This article analyses the growth of the Spanish economy over the period 1964–93, during which it can be observed that the per capita income levels of the Spanish regions converged. The objective of the study is to evaluate this process of convergence in income from the perspective of the productive efficiency of the regions, in three different ways. First, Section I considers the importance of the contributions of the private factors of production and of improvements in total factor productivity to the growth of output. Secondly, section II studies the existing relationship between the standard measure of efficiency (Solow's residual or TFP') and a stricter measure when the endowments of public capital are considered. Section III analyses whether or not the convergence in per capita income     

The diversity of forecasts from macroeconomic models of the US economy

This paper investigates the accuracy and heterogeneity of output growth and inflation forecasts during the current and the four preceding NBER-dated US recessions. We generate forecasts from six different models of the US economy and compare them to professional forecasts from the Federal Reserve??s Greenbook and the Survey of Professional Forecasters (SPF). The model parameters and model forecasts are derived from historical data vintages so as to ensure comparability to historical forecasts by professionals. The mean model forecast comes surprisingly close to the mean SPF and Greenbook forecasts in terms of accuracy even though the models only make use of a small number of data series. Model forecasts compare particularly well to professional forecasts at a horizon of three to four quarters and during recoveries. The extent of forecast heterogeneity is similar for model and professional forecasts but varies substantially over time. Thus, forecast heterogeneity constitutes a potentially important source of economic fluctuations. While the particular reasons for diversity in professional forecasts are not observable, the diversity in model forecasts can be traced to different modeling assumptions, information sets and parameter estimates.     

The minimum wage, employment, and the AS-IF methodology: A forecasting approach to evaluating the minimum wage

Out-of-sample employment forecasts for 33 U.S. industries which are likely to be sensitive to the federal minimum wage are, more often than not, more accurate when information about the minimum wage is not taken into account. This is true even in instances where this information improves wage forecasts. When employment forecasts conditional on the minimum wage are better, the improvement is typically small. These results are invariant to the number of workers previously making less than the new minimum wage, and to the value of the minimum wage relative to industry average wages. First version received: August 1999/Final version received: July 2000