Job Market Paper

Electoral Cycles in Macroeconomic Forecasts

This paper documents the existence of Political Forecast Cycles. In a theoretical model of political selection, we show that governments release overly optimistic GDP growth forecasts ahead of elections to increase the reelection probability. The bias arises from lack of commitment if voters are rational and from manipulation of voters’ beliefs if they are naive and do not expect the incumbent to be biased. Using high-frequency forecaster-level data from the United States, the United Kingdom, and Sweden, we document that governments overestimate short-term GDP growth by 10 to 13 percent during campaign periods. Furthermore, we find that the bias is larger when the incumbent government is not term-limited or constrained by a parliament led by the opposition. Consistent with the model, we also find that the election timing and amount of available information determine the size of the bias at different forecast horizons.

(with Davide Cipullo) Latest version Poster

Ongoing Projects

Working Papers

Biased Forecasts to Affect Voting Decisions? The Brexit Case

This paper introduces macroeconomic forecasters as political agents and suggests that they use their forecasts to influence voting outcomes. We develop a probabilistic voting model in which voters do not have complete information about the future states of the economy and have to rely on macroeconomic forecasters. The model predicts that it is optimal for forecasters with economic interest (stakes) and influence to publish biased forecasts prior to a referendum. We test our theory using high-frequency data at the forecaster level surrounding the Brexit referendum. The results show that forecasters with stakes and influence released much more pessimistic and incorrect estimates for GDP growth subject to the leave outcome than other forecasters.

(with Davide Cipullo) Latest version Uppsala University Working Paper Series (March 2019)

Inefficient Use of Competitors’ Forecasts?

Do forecasters use competitors’ forecasts efficiently? Empirical results using a large panel of forecasters suggest that forecasters underuse information from their competitors in their estimates for current and next year’s annual GDP growth and inflation. The results also show that forecasters pay more attention to their competitors when releasing short-term forecasts compared to medium-term forecasts. A baseline model with noisy and private information supports the underuse interpretation and predicts that it is optimal to pay considerable attention to competitors’ work. The theoretical framework also rules out overconfidence as the primary explanation of the observed behavior. When the model is extended to include a revision cost, it can only explain the observed inefficiency and horizon dependency if asymmetric horizon discounting between revisions and forecast errors is assumed.

Latest version Sveriges Riksbank Working Paper Series (October 2019)

Withering Cash: Is Sweden ahead of the curve or just special?

There is much in our increasingly digitized economies to suggest that the use of cash should fall. However, in almost all countries, it is constant or rising with a few notable exceptions. Sweden, in particular, displays a divergent development. In this paper, we explore the drivers behind this development. We use a data set consisting of 129 developed and developing countries and an extensive set of possible explanatory variables to estimate panel regressions for cash demand. In line with earlier studies, we find that economic development, demography, and the interest rate are important factors. A new finding is that our estimations point to a negative relationship between cash and corruption, and between cash and trust in government and financial institutions. However, this is not enough to fully explain the divergent development in Sweden. We therefore also discuss some recent events and policy measures in Sweden that seem to have accelerated the decline in cash during the last decade.

(with Hanna Armelius and Carl Andreas Claussen) Latest version Sveriges Riksbank Working Paper Series (August 2020) Column (Sep. 2020)

Selected Work in Progress

The Effect of Increasing the Transparency of Monetary Policy Committees

(with Mikael Apel and Marianna Blix Grimaldi)

Journal Publications

Adjusting for Information Content when Comparing Forecast Performance, Journal of Forecasting, 36, 784–794, 2017

Cross‐institutional forecast evaluations may be severely distorted by the fact that forecasts are made at different points in time and therefore with different amounts of information. This paper proposes a method to account for these differences when analyzing an unbalanced panel of forecasts. The method computes the timing effect and the forecaster's ability simultaneously. Monte Carlo simulation demonstrates that evaluations that do not adjust for the differences in information content may be misleading. In addition, the method is applied to a real‐world dataset of 10 Swedish forecasters for the period 1999–2015. The results show that the ranking of the forecasters is affected by the proposed adjustment.

(with Michael K. Andersson & Ted Aranki) Published Paper Riksbank WP 2016 Code

Other Publications

Kommentar på Johan Lönnroths artikel "Brev till den parlamentariska riksbankskommittén" (2018)

Ekonomisk Debatt 5/2018 (with Jesper Lindé)Links: Swedish

Do Swedish Forecasters Properly Account for Sweden’s International Dependence? (2017)

Sveriges Riksbank Economic Review 2017:2 (with Jesper Lindé)Links: English, Swedish

It’s a myth that the Riksbank’s forecasts have been governed by models (2017)

Sveriges Riksbank Economic Review 2017:1 (with Jesper Lindé)Links: English, Swedish

En myt att Riksbankens prognoser styrts av modeller (2016)

Ekonomisk Debatt 8/2016 (with Jesper Lindé)Links: Swedish

An assessment of the Riksbank’s international forecasts (2015)

Economic Commentaries, No. 14, 2015, Sveriges Riksbank (with Ted Aranki)Links: English, Swedish

Interest and inflation rates through the lens of the theory of Irving Fisher (2015)

Sveriges Riksbank Economic Review 2015:2 (with Magnus Jonsson)Links: English, Swedish