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The Efficiency of Multivariate Macroeconomic Forecasts
Author(s) -
Deschamps Bruno,
Ioannidis Christos
Publication year - 2014
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12016
Subject(s) - economics , multivariate statistics , econometrics , inflation (cosmology) , autoregressive model , unemployment , sign (mathematics) , vector autoregression , consensus forecast , macroeconomics , statistics , mathematics , mathematical analysis , physics , theoretical physics
We examine the efficiency of multivariate macroeconomic forecasts by estimating a vector autoregressive model on the forecast revisions of four variables ( GDP , inflation, unemployment and wages). Using a data set of professional forecasts for the G 7 countries, we find evidence of cross‐series revision dynamics. Specifically, forecasts revisions are conditionally correlated to the lagged forecast revisions of other macroeconomic variables, and the sign of the correlation is as predicted by conventional economic theory. This indicates that forecasters are slow to incorporate news across variables. We show that this finding can be explained by forecast underreaction.