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Frankfurt am Main, Germany

Kenny G.,DG Research | Kostka T.,DG Research | Masera F.,Charles III University of Madrid
Journal of Forecasting | Year: 2014

In this paper, we propose a framework to evaluate the subjective density forecasts of macroeconomists using micro data from the euro area Survey of Professional Forecasters (SPF). A key aspect of our analysis is the use of evaluation measures which take account of the entire predictive densities, and not just the probability assigned to the outcome that occurs. Overall, we find considerable heterogeneity in the performance of the surveyed densities at the individual level. However, it is hard to exploit this heterogeneity and improve aggregate performance by trimming poorly performing forecasters in real time. Relative to a set of simple benchmarks, density performance is somewhat better for GDP growth than for inflation, although in the former case it diminishes substantially with the forecast horizon. In addition, we report evidence of an improvement in the relative performance of expert densities during the recent period of macroeconomic volatility. However, our analysis also reveals clear evidence of overconfidence or neglected risks in expert probability assessments, as reflected in frequent occurrences of events which are assigned a zero probability. Copyright © 2014 John Wiley & Sons, Ltd. Copyright © 2014 John Wiley & Sons, Ltd. Source

Dedola L.,DG Research | Lombardo G.,DG Research
Economic Policy | Year: 2012

The recent Great Recession has been particularly remarkable not only for its unprecedented severity, but also for the exceptional degree of global interdependence in financial and real variables. A much-discussed channel of propagation hinges on the international exposure of the balance sheet of highly leveraged players to 'toxic' US assets. Yet, existing evidence on the role of exposure is mixed at best. This paper argues that under financial integration, the fact that leveraged investors face the same returns across internationally traded assets, would tend to equalize their borrowing cost across countries. Model simulations show that an unexpected increase in credit spreads in one country generates a similar increase in credit spreads in other financially integrated countries bringing about a global contraction, quite independently of the exposure to foreign assets in the balance sheet of leveraged investors. Our analysis thus suggests some caution in assessing the risks of 'contagion' on the exclusive basis of quantitative measures of integration based on cross-border balance sheet exposure. © CEPR, CES, MSH, 2012. Source

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