Title: Assumptions and macroeconomic forecasts: Disagreement, revisions and forecast errors
Authors: Katja Heinisch - Halle Institute for Economic Research (Germany) [presenting]
Alexander Glas - FAU Erlangen-Nuernberg (Germany)
Abstract: Using data from the European Central Bank's Survey of Professional Forecasters, the role of ex-ante conditioning assumptions for macroeconomic forecasts is analyzed. In particular, we test to which extent the heterogeneity, updating and ex-post performance of predictions for inflation, real GDP growth and the unemployment rate can be related to assumptions about oil prices, exchange rates, interest rates and wage growth. Our findings indicate that experts predict macroeconomic outcomes in line with well-known theoretical relationships such as the Phillips curve, Okun's Law or the Taylor rule. Inflation forecasts are closely associated with oil price assumptions, whereas interest rate assumptions are used primarily to forecast output growth and unemployment. Exchange rate and wage growth assumptions also play a role in shaping forecasts, albeit less so than oil prices and interest rates. The findings indicate that survey participants can improve the accuracy of their macroeconomic predictions by reducing assumption errors. These results contribute to a better understanding of the expectation formation process of economic agents.