Economic policy uncertainty and forecast bias in the survey of professional forecasters

Boskabadi, Elahe (2022): Economic policy uncertainty and forecast bias in the survey of professional forecasters.

Abstract

This paper analyzes the properties of forecast bias in the Survey of Professional Forecasters in relation to economic policy uncertainty. Employing the quarterly forecast bias of 14 key macroeconomic variables and 12 measures of policy uncertainty from 1985 to 2020, we demonstrate that most real activity variables have significant negative responses to economic policy uncertainty. On the other hand, there is a substantial degree of sluggishness in the corresponding forecasts, generating long-lasting forecast bias. In other words, our results show that inattentive forecasters cause SPF forecast bias using both static and dynamic frameworks.

• Item Type: MPRA Paper
• Language: English
• Keywords: survey of professional forecasters; forecast bias; Economic policy uncertainty; cross-section dependence
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General

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