Uncertainty in Economists’ Macroeconomic Forecasts

This study presents an overview of trends in macroeconomic uncertainty in Japan over the past 20 years using uncertainty measures constructed from economists’ macroeconomic forecast data. The main findings are as follows. First, while there is a substantial upward (optimistic) bias in economists’ forecasts of economic growth and CPI inflation rates, the bias is smaller than that of the government and the Bank of Japan. Second, the findings reaffirm that the global financial crisis and the COVID-19 crisis were extremely large uncertainty shocks. Third, while uncertainty measured by ex-post forecast errors tends to be larger for forecasts for the distant future, uncertainty measured by the degree of disagreement is larger for forecasts for the near future. Fourth, while the uncertainty in the current year’s forecast tends to decrease with the later survey months due to the incorporation of actual results up to the time of forecasting, the reduction of the uncertainty in the next year’s forecast with the progress of the survey months is limited. Fifth, while uncertainty as measured by the forecast disagreement tends to be higher during recessions, no such relationship is observed for uncertainty as measured by the forecasting error.