Forecast Performance in Times of Terrorism


Benchimol, JonathanEl-Shagi, Makram


Governments, central banks, and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, which should be considered by decision makers. We focus on terrorism, as a mostly endogenously driven form of political uncertainty, and use new econometric tests to assess the forecasting performance of market and professional inflation and exchange-rate forecasts in Israel. We show that expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, forecasting performance and abilities of both market-based and expert forecasts are significantly reduced during such periods. Thus, policymakers should be particularly attentive to terrorism when considering inflation and exchange-rate forecasts.


inflation, exchange rate, forecast performance, terrorism, market forecast, expert forecast.


Benchimol, J. / El-Shagi, M.: Forecast Performance in Times of Terrorism, in: Economic Modelling, Vol. 91, pp. 386-402, September 2020.

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