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Does judgment improve macroeconomic density forecasts?
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Galvão, Ana Beatriz, Garratt, Anthony and Mitchell, James (2021) Does judgment improve macroeconomic density forecasts? International Journal of Forecasting, 37 (3). pp. 1247-1260. doi:10.1016/j.ijforecast.2021.02.007 ISSN 0169-2070.
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Official URL: https://doi.org/10.1016/j.ijforecast.2021.02.007
Abstract
This paper presents empirical evidence on how judgmental adjustments affect the accuracy of macroeconomic density forecasts. Judgment is defined as the difference between professional forecasters’ densities and the forecast densities from statistical models. Using entropic tilting, we evaluate whether judgments about the mean, variance and skew improve the accuracy of density forecasts for UK output growth and inflation. We find that not all judgmental adjustments help. Judgments about point forecasts tend to improve density forecast accuracy at short horizons and at times of heightened macroeconomic uncertainty. Judgments about the variance hinder at short horizons, but can improve tail risk forecasts at longer horizons. Judgments about skew in general take value away, with gains seen only for longer horizon output growth forecasts when statistical models took longer to learn that downside risks had reduced with the end of the Great Recession. Overall, density forecasts from statistical models prove hard to beat.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HB Economic Theory | ||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Economic forecasting, Forecasting, Judgment, Decision making -- Econometric models | ||||||||
| Journal or Publication Title: | International Journal of Forecasting | ||||||||
| Publisher: | Elsevier | ||||||||
| ISSN: | 0169-2070 | ||||||||
| Official Date: | July 2021 | ||||||||
| Dates: |
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| Volume: | 37 | ||||||||
| Number: | 3 | ||||||||
| Page Range: | pp. 1247-1260 | ||||||||
| DOI: | 10.1016/j.ijforecast.2021.02.007 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Date of first compliant deposit: | 26 March 2021 | ||||||||
| Is Part Of: | 1 | ||||||||
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