Do German economic research institutes publish efficient growth and inflation forecasts? A Bayesian analysis

Christoph Behrens; Christian Pierdzioch; Marian Risse

doi:10.1080/02664763.2019.1652253

Do German economic research institutes publish efficient growth and inflation forecasts? A Bayesian analysis

J Appl Stat. 2019 Aug 8;47(4):698-723. doi: 10.1080/02664763.2019.1652253. eCollection 2020.

Authors

Christoph Behrens¹, Christian Pierdzioch¹, Marian Risse¹

Affiliation

¹ Department of Economics, Helmut Schmidt University, Hamburg, Germany.

Abstract

We use Bayesian additive regression trees to reexamine the efficiency of growth and inflation forecasts for Germany. To this end, we use forecasts of four leading German economic research institutes for the sample period from 1970 to 2016. We reject the strong form of forecast efficiency and find evidence against the weak form of forecast efficiency for longer-term growth and longer-term inflation forecasts. We cannot reject weak efficiency of short-term growth and inflation forecasts and of forecasts disaggregated at the institute level. We find that Bayesian additive regression trees perform significantly better than a standard linear efficiency-regression model in terms of forecast accuracy.

Keywords: Bayesian modeling; C53; E31; E32; E37; Forecast efficiency; regression trees.

Grants and funding

This work was supported by the German Science Foundation (Deutsche Forschungsgemeinschaft) (Project: Exploring the experience-expectation nexus in macroeconomic forecasting using computational text analysis and machine learning; Project number: 275693836).