The macroeconomic projections of the German government: A comparison to an independent forecasting institution

Abstract

<jats:title>Abstract</jats:title><jats:p>This paper investigates the macroeconomic projections of the German government since the 1970s and compares it to those of the Joint Economic Forecast, which is an independent forecasting institution in Germany. Our results indicate that both nominal GDP projections are upward biased for longer forecast horizons, which seems to be driven by a false assessment of the decline in Germany’s trend growth and a systematic failure to correctly anticipate recessions. Furthermore, we show that the German government deviates from the projections of the Joint Economic Forecast, which in fact worsened the forecast accuracy. Finally, we find evidence that these deviations are driven by political motives.</jats:p>

Tax Revenue Forecast Errors: Wrong Predictions of the Tax Base or the Elasticity?

“…Table 8 presents the mean absolute forecast errors, MAFE j,B = 1/T T (|FE j,B |) with j = JEF, GOV, and the mean absolute forecast deviation of the forecasts, MAFD B = 1/T T (| y B,JEF − y B,GOV |). We can confirm the finding of Lehmann and Wollmershäuser (2020) that the MAFE for nominal GDP by the JEF (1.14 percentage points) is smaller than the one by the government (1.19 percentage points). We observe a similar picture for the wage and private consumption forecasts, where the JEF outperforms the government by 0.07 and 0.10 percentage points, respectively.…”

“…According to Lehmann and Wollmershäuser (2020) and Büttner and Kauder (2010) independent institutions publish better forecasts than the government. Even more specific, the macroeconomic projections of the German government for nominal GDP are outperformed by the forecasts of the Joint Economic Forecast (JEF) according to Lehmann and Wollmershäuser (2020).…”

“…According to Lehmann and Wollmershäuser (2020) and Büttner and Kauder (2010) independent institutions publish better forecasts than the government. Even more specific, the macroeconomic projections of the German government for nominal GDP are outperformed by the forecasts of the Joint Economic Forecast (JEF) according to Lehmann and Wollmershäuser (2020). The JEF is a biannual consensus forecast of Germany's main Economic Research Institutes, which serves as the central input for the government's own macroeconomic projections.…”