Assessment of GDP forecast uncertainty

Abstract:

This paper develops an approach to measure the uncertainty surrounding expected GDP growth that prevails in the economy. This is accomplished by making use of consensus forecasts of GDP growth and by studying the properties of distributions of forecasted euro area GDP growth. A euro area distribution is constructed from the mean distributions of individual country specific consensus forecasts. Information contained in the distributions can be used to make uncertainty assessments of future economic development.

The paper shows that uncertainty varies over time, and how the levels can be compared with a historical mean and between different time periods. Furthermore, the paper shows that the constructed distributions can be asymmetric as measured by their skewness. This information can be used to assess whether risks are on the upside, or the downside. Two graphs are proposed to be used as a regular monitoring tool, illustrating the measured uncertainty and balance of risks.

• Primary Source

http://ec.europa.eu/comm/economy_finance/publications/economic_papers/2003/ecp184en.pdf http://ec.europa.eu/comm/economy_finance/publications/economic_papers/2003/ecp184en.pdf

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