Disagreement Among Forecasters in G7 Countries

Using the Consensus Economics dataset with individual expert forecasts we investigate determinants of disagreement (cross-sectional dispersion of forecasts) about six key economic indicators in G7 countries. Disagreementabout real variables (GDP, consumption, investment and unemployment) has a distinct dynamic from disagreement about nominal variables (inflation and interest rate). Disagreement about real variables intensifies strongly (by about 40 percent) during recessions. Disagreement about nominal variables rises with their level, has fallen after 1998 or so (by 30 percent), and is considerably lower under independent central banks (by 35 percent). Cross-sectional dispersion for both groups increases with uncertainty aboutthe underlying indicators. Country-by-country regressions for inflation andinterest rates reveal that both the level of disagreement and its sensitivity to macroeconomic variables tend to be larger in Italy, Japan and the United Kingdom, where central banks became independent only around the mid-1990s. These findings suggest that more credible monetary policy can substantially contribute to anchoring of expectations about nominal variables; its effects on disagreement about real variables are moderate.