Forecast Errors and Uncertainty Shocks

16 Pages Posted: 16 Dec 2016

See all articles by Pratiti Chatterjee

Pratiti Chatterjee

University of California, Irvine

Sylwia Barbara Nowak

International Monetary Fund (IMF)

Date Written: November 2016

Abstract

Macroeconomic forecasts are persistently too optimistic. This paper finds that common factors related to general uncertainty about U.S. macrofinancial prospects and global demand drive this overoptimism. These common factors matter most for advanced economies and G-20 countries. The results suggest that an increase in uncertainty-driven overoptimism has dampening effects on next-year real GDP growth rates. This implies that incorporating the common structure governing forecast errors across countries can help improve subsequent forecasts.

Keywords: Economic forecasting, Forecasting models, Vector autoregression, Error analysis, Forecasting, common factors, uncertainty

JEL Classification: C53, D81, E32

Suggested Citation

Chatterjee, Pratiti and Nowak, Sylwia Barbara, Forecast Errors and Uncertainty Shocks (November 2016). IMF Working Paper No. 16/228, Available at SSRN: https://ssrn.com/abstract=2886395

Pratiti Chatterjee

University of California, Irvine ( email )

Campus Drive
Irvine, CA California 62697-3125
United States

Sylwia Barbara Nowak (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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