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Forecast Performance in Times of Terrorism

Jonathan Benchimol () and Makram El-Shagi

No 2019.08, Bank of Israel Working Papers from Bank of Israel

Abstract: Abstra​ct Governments, central banks, and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, a factor that should be considered by decision-makers. We focus on terrorism as a mostly endogenously driven form of political uncertainty and assess the forecasting performance of market-based and professional inflation and exchange rate forecasts in Israel. We show that expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, the performance of both market-based and expert forecasts is significantly worse during such periods. Thus, policymakers should be particularly attentive to terrorism when considering inflation and exchange rate forecasts.

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Date: 2019-07
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ftp://repec-boi.northeurope.cloudapp.azure.com/RePEc/boi/wpaper/WP_2019.08.pdf First version, 2019 (application/pdf)

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Working Paper: Forecast Performance in Times of Terrorism (2017) Downloads
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