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Forecast Errors and Uncertainty Shocks

Sylwia Nowak () and Pratiti Chatterjee

No 16/228, IMF Working Papers from International Monetary Fund

Abstract: Macroeconomic forecasts are persistently too optimistic. This paper finds that common factors related to general uncertainty about U.S. macrofinancial prospects and global demand drive this overoptimism. These common factors matter most for advanced economies and G- 20 countries. The results suggest that an increase in uncertainty-driven overoptimism has dampening effects on next-year real GDP growth rates. This implies that incorporating the common structure governing forecast errors across countries can help improve subsequent forecasts.

Keywords: Forecasting; common factors, uncertainty, Forecasting and Other Model Applications, Criteria for Decision-Making under Risk and Uncertainty (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for and nep-mac
Date: 2016-11-17
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