When do forecasters disagree? An assessment of German growth and inf lation forecast dispersion Jo ¨rg Do ¨pke a,1 , Ulrich Fritsche b, * a Deutsche Bundesbank, Economics Department, Wilhelm-Epstein-Strasse 14, Frankfurt, Germany b German Institute for Economic Research (DIW Berlin), Ko ¨nigin-Luise-Strasse 5, D-14195 Berlin, Germany Abstract Based on a panel of German professional forecasts for 1970–2004 we analyse the dispersion of growth and inflation forecasts. Forecast dispersion varies over time and is particularly high before and during recessions. There is no clear link between forecast dispersion and the subsequent forecast error. Forecast dispersion is positively correlated with the volatility of macroeconomic variables, but not necessarily with the level of the same variables. We interpret this finding to be evidence in favour of the notion that forecasters do not share a common belief about what is an adequate model of the economy. In particular, the assessment of the effects of monetary policy seems to be the prime suspect for diverging beliefs regarding an appropriate model of the economy. D 2005 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved. JEL classification: E32; E37; C52; C53 Keywords: Consensus forecast; Disagreement; Uncertainty; Germany 1. Introduction While a lot of studies refer to the quality of indi- vidual forecasts or to those of a very small group of institutions, 2 there is (to our knowledge) no study which examines the forecasts of a larger group of German institutions. Furthermore, there has been no study which deals mainly with the dispersion of Ger- man macroeconomic forecasts. The present study tries to fill this gap by taking into account the predictions of all forecasters that provide forecasts for Germany for a long time span, i.e., from (at least) the early 1970s onwards. We use annual data for growth and inflation forecasts from 1970 to 2004, coming from up to 17 different forecasts. This novel data set makes it possible to test whether the dispersion of forecasts might potentially provide useful information. To this end, we analyse whether there was indeed a consensus among German forecasters. 0169-2070/$ - see front matter D 2005 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved. doi:10.1016/j.ijforecast.2005.05.006 * Corresponding author. Tel.: +49 30 8978 9315; fax: +49 30 8978 9102. E-mail addresses: joerg.doepke@bundesbank.de (J. Do ¨ pke), ufritsche@diw.de (U. Fritsche). 1 Tel.: +49 69 9666 3051; fax: +49 69 9566 4317. 2 For an overview of recent work on German business cycle forecasts see Heilemann and Stekler (2003) and the literature cited therein. International Journal of Forecasting 22 (2006) 125 – 135 www.elsevier.com/locate/ijforecast