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Forecast Surveys

Forecast Surveys. Introduction. Two Philadelphia Fed surveys of private-sector forecasters Livingston Survey Survey of Professional Forecasters (SPF) Provide timely forecasts for policymakers and economic analysts Used to answer numerous research questions. Introduction.

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Forecast Surveys

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  1. Forecast Surveys

  2. Introduction • Two Philadelphia Fed surveys of private-sector forecasters • Livingston Survey • Survey of Professional Forecasters (SPF) • Provide timely forecasts for policymakers and economic analysts • Used to answer numerous research questions

  3. Introduction • Philadelphia Fed economists pushed to have surveys here • Livingston Survey: Don Mullineaux (?) • SPF: Dean Croushore • Current research department keeps them here & makes them ever more useful • Loretta Mester (research director) • Tom Stark (maestro)

  4. Introduction • Both surveys • Available to the public at no charge (Fed’s public education mission) • Used by news media, policymakers, economic analysts, labor unions, consumers

  5. Introduction • Livingston Survey • Begun in 1946 • Joe Livingston, journalist • 1970s: economists discover survey • 1978: Philadelphia Fed takes over database • 1990: Philadelphia Fed takes over administration of survey

  6. Introduction • SPF • ASA/NBER survey begun in 1968 • Victor Zarnowitz & other founders • ASA/NBER folds survey in 1990 • Philadelphia Fed takes over in 1990 • Renamed Survey of Professional Forecasters

  7. What Variables Do the Participants Forecast?Both surveys: • Nominal GDP • Real GDP • Inflation (CPI) • Unemployment rate • Industrial production • Interest rate: 3-month T-bills • Interest rate: 10-year T-notes • Corporate profits after tax • Housing starts • Business fixed investment

  8. What Variables Do the Participants Forecast?Livingston survey: • Producer price index • S&P 500 stock prices • Average weekly earnings • Retail trade sales • Auto sales • Prime interest rate • Average over the next 10 years: • Real GDP growth • CPI inflation rate

  9. What Variables Do the Participants Forecast?SPF: • GDP price index • Payroll employment • Interest rate: AAA bonds • Remaining GDP components • Inflation rates: • CPI excluding food & energy prices (core CPI) • PCE price index • PCE price index excluding food & energy prices (core) • Probability that real GDP will decline • Distribution forecasts: • Real GDP • GDP price index • Core CPI • Core PCE price index • Long-term forecasts: • CPI price index • PCE price index

  10. What Variables Do the Participants Forecast?SPF: • First Quarter: • Long-term projections • Real GDP growth • Productivity growth • Stock returns • Long-term bond returns • Short-term bond returns • Third Quarter: • Estimates of natural rate of unemployment • Special Questions • Declines in house prices • Effects of stimulus package • Effect of Y2K

  11. Anonymity • Both surveys promise anonymity • Can’t match forecaster to a forecast • Allows forecasters to reveal their true forecast, without attribution • Prevents herding and extreme forecasts

  12. Evaluating the Survey Forecasts • Are the forecasts accurate? • Statistical tests • Unbiasedness (forecast errors have zero mean) • Efficiency (forecast errors are uncorrelated with information known when forecast was made)

  13. Evaluating the Survey Forecasts • Unbiasedness • Over long samples, forecasts of major variables appear unbiased (Figure 1)

  14. Evaluating the Survey Forecasts • Unbiasedness • Over long samples, forecasts of major variables appear unbiased (Figure 1) • Formal statistical tests: • Test: α = 0, β = 1

  15. Evaluating the Survey Forecasts • Unbiasedness • Or: • Test: α = 0

  16. Evaluating the Survey Forecasts • Sub-periods show poor performance

  17. Evaluating the Survey Forecasts • Sub-periods show poor performance • Persistent forecast errors in 1970s and 1990s • Those periods require explanation: failure to recognize impact of faster money growth; errors in evaluating natural rate of unemployment and rate of potential GDP growth

  18. Evaluating the Survey Forecasts • Inefficiency with respect to other variables • Test: forecast errors should be uncorrelated with other variables known when survey was conducted • Example from Ball-Croushore (Figure 3)

  19. Evaluating the Survey Forecasts • Inefficiency with respect to other variables • Example from Ball-Croushore (Figure 3) • SPF forecasters seem not to change output forecasts enough in response to change in monetary policy

  20. Evaluating the Survey Forecasts • Accuracy of probability distribution forecasts • Results from Diebold-Tay-Wallis (1999) • Forecasts are reasonably accurate • But too much probability of a large reduction in inflation • Persistent inflation forecast errors

  21. Evaluating the Survey Forecasts • Conclusion • SPF & Livingston survey forecasts fairly accurate—passing most tests • Some imperfections

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