Performance of Survey Forecasts by Professional Analysts: Did the European Debt Crisis Make it Harder or Perhaps Even Easier?

As the future movements of financial time series like the European Central Bank’s benchmark rate are exposed to uncertainty, financial market participants regularly have to rely on professional analysts’ forecasts. Not surprisingly—and for decades already—the quality of survey forecasts has been evaluated, with heterogeneous results. In addition, forecasters’ performance can change through the course of time. This may happen not only due to wrong or inadequate underlying models. Especially in times of financial turmoil or monetary crisis—like the European debt crisis—the interest rate moves made by central bankers may become even harder to predict (at least the direct reaction to the crisis). Because of this, we evaluate the performance of survey forecasts for the three months rate in the Euro zone performed by financial professionals and test for structural breaks to evidence for crisis related changes and the corresponding forecast errors.