Information or Institution? On the Determinants of Forecast Accuracy

32 Pages Posted: 14 Nov 2010  

Roland Doehrn

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)

Date Written: September 1, 2010

Abstract

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.

Keywords: Forecast accuracy, Forecast Revisions, Forecast Horizon, Economic Activity

JEL Classification: C53, E27, E01

Suggested Citation

Doehrn, Roland and Schmidt, Christoph M., Information or Institution? On the Determinants of Forecast Accuracy (September 1, 2010). Ruhr Economic Paper No. 201. Available at SSRN: https://ssrn.com/abstract=1707984 or http://dx.doi.org/10.2139/ssrn.1707984

Roland Doehrn (Contact Author)

Rheinisch-Westfalisches Institut fur Wirtschaftsforschung, Essen (Rhine-Westphalia Institute for Economic Research) ( email )

45128 Essen
Germany

Christoph M. Schmidt

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI Essen) ( email )

Hohenzollernstraße 1-3
Essen, 45128
Germany
++49 201 8149-227 (Phone)
++49 201 8149-236 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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