Rounding bias in forecast uncertainty

Research in Economics, 2020, vol. 74, issue 4, 277-291

Abstract: The European Survey of Professional Forecasters (SPF) is a dataset that is widely used to derive measures of forecast uncertainty. Participants in the SPF provide not only point estimates but also density forecasts for key macroeconomic variables. The mean individual variance, defined as the average of the variances of individual forecasts, shifted up during the Great Recession and has remained elevated since the crisis. The paper seeks to explain this puzzling lack of countercyclicality by applying a smooth transition analysis on data from the European SPF. The analysis indicates that the mean individual variance is a function of the modelling preferences of forecasters and consequently shifts in individual variance are likely to be misleading for the actual changes in the perceived uncertainty. The results remain robust after potential endogeneity has been accounted for.

Keywords: Survey uncertainty; Density forecasts; Surveys of professional forecasters; Simulations; Smooth transition; Instrumental variables (search for similar items in EconPapers)
JEL-codes: C25 C32 C83 D81 E32 E37 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:74:y:2020:i:4:p:277-291

DOI: 10.1016/j.rie.2020.08.001

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