When do forecasters disagree? An assessment of German growth and inflation forecast dispersion

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.