How Informative are the Subjective Density Forecasts of Macroeconimists?

45 Pages Posted: 27 Jul 2012

See all articles by Geoff Kenny

Geoff Kenny

European Central Bank (ECB)

Thomas Kostka

European Central Bank (ECB)

Federico Masera

Universidad Carlos III de Madrid, Department of Economics

Date Written: June 25, 2012

Abstract

In this paper, we propose a framework to evaluate the subjective density forecasts of macroeconomists using micro data from the euro area Survey of Professional Forecasters (SPF). A key aspect of our analysis is the evaluation of the entire predictive densities, including an evaluation of the impact of density features such as location, spread, skew and tail risk on density forecast performance. Overall, we find considerable heterogeneity in the performance of the surveyed densities at the individual level. Relative to a set of simple benchmarks, this performance is somewhat better for GDP growth than for inflation, although in the former case it diminishes substantially with the forecast horizon. In addition, we report evidence of some improvement in the relative performance of expert densities during the recent period of macroeconomic volatility. However, our analysis also reveals clear evidence of overconfidence or neglected risks in expert probability assessments, as reflected in frequent occurrences of events which are assigned a zero probability. Moreover, higher moment features of expert densities, such as skew or the degree of probability mass in their tails, are shown not to contribute significantly to improvements in individual density forecast performance.

Keywords: Forecast evaluation, neglected risks, real-time data, Survey of Professional Forecasters

JEL Classification: C22, C53

Suggested Citation

Kenny, Geoff and Kostka, Thomas and Masera, Federico, How Informative are the Subjective Density Forecasts of Macroeconimists? (June 25, 2012). ECB Working Paper No. 1446, Available at SSRN: https://ssrn.com/abstract=2091134

Geoff Kenny (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Thomas Kostka

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Federico Masera

Universidad Carlos III de Madrid, Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

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