How Informative are the Subjective Density Forecasts of Macroeconomists?

How Informative are the Subjective Density Forecasts of Macroeconomists?

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Article ID: iaor201523624
Volume: 33
Issue: 3
Start Page Number: 163
End Page Number: 185
Publication Date: Apr 2014
Journal: Journal of Forecasting
Authors: , ,
Keywords: forecasting: applications
Abstract:

In this paper, we propose a framework to evaluate the subjective density forecasts of macroeconomists using micro data from the euro area Survey of Professional Forecasters (SPF). A key aspect of our analysis is the use of evaluation measures which take account of the entire predictive densities, and not just the probability assigned to the outcome that occurs. Overall, we find considerable heterogeneity in the performance of the surveyed densities at the individual level. However, it is hard to exploit this heterogeneity and improve aggregate performance by trimming poorly performing forecasters in real time. Relative to a set of simple benchmarks, density performance is somewhat better for GDP growth than for inflation, although in the former case it diminishes substantially with the forecast horizon. In addition, we report evidence of an improvement in the relative performance of expert densities during the recent period of macroeconomic volatility. However, our analysis also reveals clear evidence of overconfidence or neglected risks in expert probability assessments, as reflected in frequent occurrences of events which are assigned a zero probability.

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