A multivariate analysis of forecast disagreement: Confronting models of disagreement with survey data

Dovern, Jonas

doi:10.1016/j.euroecorev.2015.08.009

Cited by 56 publications

(56 citation statements)

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“…For each set of parameters, however, it predicts that every forecaster has the same expected performance and the same expected level of disagreement. The latter prediction is at odds with the empirical evidence provided in Dovern (2015) and we now turn to a version of the model with heterogeneous signal-to-noise ratios.…”

Section: Homogeneous Signal-to-noise Ratioscontrasting

confidence: 42%

“…We conclude that imperfect information models with heterogeneous signal-to-noise ratios as proposed in Dovern (2015) are not rejected by the data based on the correlation between forecast performance and disagreement for short-to medium-run forecast. For very long-run forecasts, in contrast, the model's predictions are rejected by the data.…”

Section: Resultsmentioning

confidence: 98%

“…Empirical results of (Andrade et al, 2014;Dovern, 2015), however, suggest that long-run disagreement can be substantial and may even exceed short-run disagreement. Andrade et al …”

Section: Heterogeneous Signal-to-noise Ratiosmentioning

confidence: 96%

“…In particular, there is widespread evidence that macroeconomic forecasts differ widely across professional forecasters (see, e. g., Mankiw et al, 2003;Dovern, 2015). Analyzing disagreement in survey expectations may yield important insights about the expectation formation process.…”

Section: Introductionmentioning

confidence: 99%

“…However, using a large data set with professional forecasts for different macroeconomic variables, Dovern (2015) finds that there is substantial persistence in the degree to which individual forecasters deviate from the average forecast (consensus) and also differences in the average level of disagreement across forecasters. To account for this fact, he suggests to generalize imperfect information models to allow for heterogeneous signal-to-noise ratios.…”

Section: Introductionmentioning

confidence: 99%

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Forecast performance, disagreement, and heterogeneous signal-to-noise ratios

Dovern

Hartmann

2016

Empir Econ

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe propose an imperfect information model for the expectations of macroeconomic forecasters that explains differences in average disagreement levels across forecasters by means of cross sectional heterogeneity in the variance of private noise signals. We show that the forecaster-specific signal-to-noise ratios determine both the average individual disagreement level and an individuals' forecast performance: forecasters with very noisy signals deviate strongly from the average forecasts and report forecasts with low accuracy. We take the model to the data by empirically testing for this implied correlation. Evidence based on data from the Surveys of Professional Forecasters for the US and for the Euro Area supports the model for short-and medium-run forecasts but rejects it based on its implications for long-run forecasts.JEL classification: E37, D80

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Section: Homogeneous Signal-to-noise Ratioscontrasting

confidence: 42%

Section: Resultsmentioning

confidence: 98%

“…Empirical results of (Andrade et al, 2014;Dovern, 2015), however, suggest that long-run disagreement can be substantial and may even exceed short-run disagreement. Andrade et al …”

Section: Heterogeneous Signal-to-noise Ratiosmentioning

confidence: 96%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Forecast performance, disagreement, and heterogeneous signal-to-noise ratios

Dovern

Hartmann

2016

Empir Econ

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Regional, individual and political determinants of FOMC members' key macroeconomic forecasts

Eichler

Lähner²

2017

Journal of Forecasting

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We study Federal Open Market Committee members' individual forecasts of inflation and unemployment in the period 1992-2004. Our results imply that Governors and Bank presidents forecast differently, with Governors submitting lower inflation and higher unemployment rate forecasts than bank presidents. For Bank presidents we find a regional bias, with higher district unemployment rates being associated with lower inflation and higher unemployment rate forecasts. Bank presidents' regional bias is more pronounced during the year prior to their elections or for nonvoting bank presidents. Career backgrounds or political affiliations also affect individual forecast behavior. KEYWORDS FOMC, individual characteristics, individual forecasts, regional bias | INTRODUCTIONWe analyze the forecast determinants of Federal Open Market Committee (FOMC) members. Individual forecasts of key macroeconomic factors (such as unemployment and inflation rates) are crucial indicators for determining optimal monetary policy when a forward-looking policy rule is considered. 1 Since the FOMC is a committee consisting of 12 voting members (seven members of the Board of Governors (BoG) 2 and five voting regional Federal Reserve Bank presidents), disagreement about the optimal monetary policy stance (as shown in many studies) not only leads to dissenting votes in the FOMC but may also lead to dispersion of forecasts among FOMC members. Thus analyzing the determinants of real-time inflation and unemployment rate forecasts may improve our understanding of differences in the monetary policy preferences among FOMC members. This paper aims to analyze the determinants of FOMC members' individual inflation and unemployment rate forecasts in the period 1992-2004. We add to the existing literature not only by considering a broadest set of potential regional, individual, and political characteristics, but also by testing determinants (such as career backgrounds, electoral cycles, political affiliation) not previously considered in the FOMC forecasting literature. Our results indicate considerable differences in the economic forecasts between Governors and Bank presidents. Moreover, forecasts of Bank presidents are influenced by the unemployment rate in their 1 Haldane and Batini (1999), as well as Rudebusch and Svensson (1999), compare monetary policy rules and conclude that forward-looking rules including forecasts of inflation instead of actual values can improve monetary policy performance relative to a simple benchmark rule (such as proposed in Taylor, 1993). Clarida, Gali, and Gertler (1998) find that so-called G3 central banks (Germany, Japan, USA) implicitly have followed a type of inflation-targeting regime since 1979, and thus all three central banks indirectly applied a forward-looking framework. Orphanides (2003) find periods -such as during the 1970s or mid-1990s-when a forecast-based rule did an even better job in describing FOMC's monetary policy. Orphanides and Wieland (2008) use a forecast-based Taylor rule framework and conclude...

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Do monetary policy transparency and central bank communication reduce interest rate disagreement?

Seelajaroen

Budsaratragoon

Jitmaneeroj

2019

Journal of Forecasting

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Yes. This study produces evidence that monetary policy transparency and communication policy of the Bank of England have information content in reducing disagreement about interest rate forecasts. Different from most extant studies employing the transparency index derived from official documents of the central banks, this study extends the literature by using a recently developed market-based monetary transparency index. Moreover, this study analyzes forecast disagreement in a multivariate perspective based on survey data of short-and long-term rates over short and long horizons. This study characterizes several patterns on forecast disagreement related to maturities of interest rates, forecast horizons, recessions, forward guidance, credibility, transparency, and communication policy. Interestingly, disagreement among the Monetary Policy Committee in policy rate decisions is associated with lower disagreement among professional forecasters on interest rate outlook, whereas neither announcement of changes in policy rates nor publication of inflation reports affects forecast disagreement. These results have important implications for monetary policymakers in managing market expectations of interest rates.

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A multivariate analysis of forecast disagreement: Confronting models of disagreement with survey data

Cited by 56 publications

References 41 publications

Forecast performance, disagreement, and heterogeneous signal-to-noise ratios

Forecast performance, disagreement, and heterogeneous signal-to-noise ratios

Regional, individual and political determinants of FOMC members' key macroeconomic forecasts

Do monetary policy transparency and central bank communication reduce interest rate disagreement?

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