Information or Institution? On the Determinants of Forecast Accuracy
Rheinisch-Westfalisches Institut fur Wirtschaftsforschung, Essen (Rhine-Westphalia Institute for Economic Research)
Christoph M. Schmidt
Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI Essen); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR)
September 1, 2010
Ruhr Economic Paper No. 201
The accuracy of macroeconomic forecast depends on various factors, most importantly the mix of analytical methods used by the individual forecasters, the way that their personal experience is shaping their identification strategies, but also their efficiency in translating new information into revised forecasts. In this paper we use a broad sample of forecasts of German GDP and its components to analyze the impact of institutions and information on forecast accuracy. We find that forecast errors are a linear function of the forecast horizon. This result is robust over a variety of different specifications. As better information seems to be the key to achieving better forecasts, approaches for acquiring reliable information early seem to be a good investment. By contrast, the institutional factors tend to be small and statistically insignificant. It has to remain open, whether this is the consequence of the efficiency-enhancing competition among German research institutions or rather the reflection of an abundance of forecast suppliers.
Number of Pages in PDF File: 32
Keywords: Forecast accuracy, Forecast Revisions, Forecast Horizon, Economic Activity
JEL Classification: C53, E27, E01
Date posted: November 14, 2010
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