Forecast Errors and Uncertainty Shocks

No 2016/228, 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: WP; G20 industrial nations; forecast error; Forecasting; common factors; uncertainty; financial market volatility; uncertainty shock; forecasts accuracy; spring forecast; Current account balance; Inflation; Global (search for similar items in EconPapers)
Pages: 15
Date: 2016-11-17
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Citations: View citations in EconPapers (6)

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