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Forecast Performance in Times of Terrorism

Jonathan Benchimol () and Makram El-Shagi

No 2017/1, CFDS Discussion Paper Series from Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China

Abstract: 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, which should be considered by decision makers. We focus on terrorism, as a mostly endogenously driven form of political uncertainty, and use new econometric tests to assess the forecasting performance of market 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, forecasting performance and abilities of both market-based and expert forecasts are significantly reduced during such periods. Thus, policymakers should be particularly attentive to terrorism when considering inflation and exchange-rate forecasts.

Keywords: inflation; exchange rate; forecast performance; terrorism; market forecast; expert forecast (search for similar items in EconPapers)
JEL-codes: C53 E37 F37 F51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for and nep-mac
Date: 2017-12
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Persistent link: https://EconPapers.repec.org/RePEc:fds:dpaper:201701

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