How professional forecasters view shocks to GDP

Spencer Krane

No WP-06-19, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Economic activity depends on agents' real-time beliefs regarding the persistence in the shocks they currently perceive to be hitting the economy. This paper uses an unobserved components model of forecast revisions to examine how the professional forecasters comprising the Blue Chip Economic Consensus have viewed such shocks to GDP over the past twenty years. The model estimates that these forecasters attribute more of the variance in the shock to GDP to permanent factors than to transitory developments. Both shocks are significantly correlated with incoming high-frequency indicators of economic activity; but for the permanent component, the correlation is driven by recessions or other periods when activity was weak. The forecasters' shocks also differ noticeably from those generated by some simple econometric models. Taken together, the results suggest that agents? expectations likely are based on broader information sets than those used to specify most empirical models and that the mechanisms generating expectations may differ with the perceived state of the business cycle.

Keywords: Gross; domestic; product (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-for and nep-mac
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