Was the deflation of the depression anticipated? An inference using real-time data

Abstract

Theories that explain the behavior of the economy during the Depression are based on assumptions about agents' expectations about future price trends. This paper uses an alternative methodological approach which utilizes real-time information from the Depression period to infer whether deflation was anticipated. The information includes the forecasting methodology of that time as well as projections about anticipated output that were obtained from the textual analysis of business statements, converting qualitative to quantitative data. We infer that deflation was not anticipated because agents did not expect economic output to consistently decrease.

German forecasters’ narratives: How informative are German business cycle forecast reports?

“…A series of forecast evaluation studies applied the developed scoring procedure of Goldfarb et al (2005) in several contexts to generate elicited forecasts to evaluate them (see e.g. Lundquist and Stekler 2012;Stekler and Symington 2016;Mathy and Stekler 2018). The recent analysis of Jones et al (2020) investigates the Bank of England's growth forecasts using elicited forecasts over the period 2005-2015. The more general research question as to whether the text contains additional information for the numerical forecasts is similar to this work.…”