Systematic Errors in Growth Expectations over the Business Cycle

We document that growth forecasts of professional forecasters in advanced economies

exhibit systematic errors and analyze how these errors depend on the business cycle

state. Forecasters, on average, overestimate GDP growth in our full sample. This

result masks, however, considerable di?erences across business cycle states. Growth

forecasts for recessions are subject to a large negative systematic error and forecasts

for recoveries are subject to a small positive systematic error. In contrast, forecasts

for expansions do not exhibit systematic errors. There is, thus, evidence that fore-

casters try to issue forecasts which are unbiased conditional on being in an expansion

rather than forecasts which are unbiased overall. We also show that forecasters ad-

just their forecasts slowly around business cycle turning points. Furthermore, we show

that cross-country di?erences in systematic forecast errors during expansions cannot

be explained by changes in trend growth rates.