Shocking! Do forecasters share a common belief?

Jörg Döpke and Ulrich Fritsche ()

Applied Economics Letters, 2008, vol. 15, issue 5, pages 355-358

Abstract: We evaluate the interaction of inflation and growth forecast errors based on 17 distinct forecasts for the German economy for the period from 1970 to 2004. The forecasts were produced by 14 institutions. Our findings show that, in general, the forecasters did not share a common belief about the shocks driving the economy at the time at which they made their forecasts. We use a standard textbook aggregate-demand/aggregate-supply curve to identify the nature of the shocks expected by the forecasters. This exercise reveals that the forecasters have very divergent expectations regarding the nature of the shocks predicted to hit the economy in the coming year. Moreover, the lion's share of forecast errors can be attributed to unexpected demand shocks.

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