Abstract
This paper investigates the macroeconomic projections of the German government since the 1970s and compares it to those of the Joint Economic Forecast, which is an independent forecasting institution in Germany. Our results indicate that both nominal GDP projections are upward biased for longer forecast horizons, which seems to be driven by a false assessment of the decline in Germany’s trend growth and a systematic failure to correctly anticipate recessions. Furthermore, we show that the German government deviates from the projections of the Joint Economic Forecast, which in fact worsened the forecast accuracy. Finally, we find evidence that these deviations are driven by political motives.
Acknowledgment
We are grateful to one anonymous referee for very helpful comments. Korbinian Breitrainer provided excellent research assistance.
Appendix
Correlations across the political variables.
| Variable | ELECT | PARTISAN | FRAG | BAL |
| ELECT | 1.00 | −0.02 | 0.05 | −0.05 |
| PARTISAN | 1.00 | −0.35 | 0.06 | |
| FRAG | 1.00 | 0.03 | ||
| BAL | 1.00 |
Note: The correlations are calculated over the whole observation period.
Deviation between GOV and JEF for the forecast horizon of 20 months.
Deviation between GOV and JEF for the forecast horizon of 14 months.
Deviation between GOV and JEF for the forecast horizon of 8 months.
Deviation between GOV and JEF for the forecast horizon of 2 months.
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