Forecast Performance in Times of Terrorism

CFDS Discussion Paper No. 1-2017

41 Pages Posted: 19 Dec 2017

Date Written: December 2017

Abstract

Governments, central banks, and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, which should be considered by decision makers. We focus on terrorism, as a mostly endogenously driven form of political uncertainty, and use new econometric tests to assess the forecasting performance of market and professional inflation and exchange-rate forecasts in Israel. We show that expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, forecasting performance and abilities of both market-based and expert forecasts are significantly reduced during such periods. Thus, policymakers should be particularly attentive to terrorism when considering inflation and exchange-rate forecasts.

Keywords: inflation, exchange rate, forecast performance, terrorism, market forecast, expert forecast

JEL Classification: C53, E37, F37, F51

Suggested Citation

Benchimol, Jonathan and El-Shagi, Makram, Forecast Performance in Times of Terrorism (December 2017). CFDS Discussion Paper No. 1-2017. Available at SSRN: https://ssrn.com/abstract=3087117 or http://dx.doi.org/10.2139/ssrn.3087117

Jonathan Benchimol

Bank of Israel ( email )

Bank of Israel Street
P.O. Box 780
Jerusalem, Jerusalem 91907
Israel
+972-2-6552641 (Phone)
+972-2-6669407 (Fax)

HOME PAGE: http://www.jonathanbenchimol.com/

Makram El-Shagi (Contact Author)

Henan University ( email )

85 Minglun St. Shunhe
Kaifeng, Henan
China

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