Forecast Performance in Times of Terrorism

Citation:

Jonathan Benchimol and Makram El-Shagi. 2020. “Forecast Performance in Times of Terrorism.” Economic Modelling. [doi]
Paper537 KB

Abstract:

Governments, central banks, and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, a factor that should be considered by decision-makers. We focus on terrorism as a mostly endogenously driven form of political uncertainty and assess the forecasting performance of market-based and professional inflation and exchange rate forecasts in Israel. We show that expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, the performance of both market-based and expert forecasts is significantly worse during such periods. Thus, policymakers should be particularly attentive to terrorism when considering inflation and exchange rate forecasts.
Last updated on 02/18/2021