Forecast performance in times of terrorism

Jonathan Benchimol and Makram El-Shagi

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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, 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.

Keywords: Terrorism; Market forecast; Expert forecast; Political economy; Econometrics; Inflation Exchange rate Forecast performance Terrorism Market forecast Expert forecast C53 E37 F37 F51; Inflation; Exchange rate; Expert forecast C53; E37; F37; F51; Inflation forecasting; Exchange rate forecasting; Forecast performance (search for similar items in EconPapers)
Date: 2020-09
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03248938v1
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Citations: View citations in EconPapers (4)

Published in Economic Modelling, 2020, 91, pp.386-402. ⟨10.1016/j.econmod.2020.05.018⟩

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Related works:
Journal Article: Forecast performance in times of terrorism (2020)
Working Paper: Forecast Performance in Times of Terrorism (2020)
Working Paper: Forecast Performance in Times of Terrorism (2019)
Working Paper: Forecast Performance in Times of Terrorism (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03248938

DOI: 10.1016/j.econmod.2020.05.018

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