Why can’t professional macroeconomic forecasters predict recessions?
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URI: http://hdl.handle.net/10317/7889Compartir
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López Pérez, VíctorGrupo de investigación
Economía, Territorio y Medio AmbienteÁrea de conocimiento
Economía AplicadaRealizado en/con
Universidad Politécnica de CartagenaFecha de publicación
2019-09-06Revisión por pares
NoPalabras clave
professional forecastersFuncas
forecast errors
forecast revisions
expected GDP growth
Resumen
The professional forecasters’ inability to anticipate macroeconomic recessions is well documented. The literature has found that aggregate or consensus forecasts are too optimistic before downturns and too pessimistic before recoveries. This paper explores whether this result also holds with individual data. Using a Spanish survey of professional forecasters conducted by Funcas, I find that forecasters are indeed too optimistic before recessions for two reasons. First, strong herding behaviour around the consensus forecast prevents those forecasters perceiving the early signs of a recession from adjusting their expectations as much as needed to predict it. And second, some forecasters put too much weight on the most recent developments when producing their forecasts and fail to fully account for the reversion to the mean embedded in the data-generating process. Both factors lead to negative forecast errors when a recession occurs. Consequently, professional forecasters could improve their ...
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