Each month, various professional forecasters give forecasts for next year's real gross domestic product (GDP) growth and unemployment. January is a special month, when the forecast horizon moves to the following calendar year. Instead of deleting the January data when analyzing forecast updates, I propose a periodic version of a test regression for weak-form efficiency. An application of this periodic model for many forecasts across a range of countries shows that in January GDP forecast updates are positive, whereas the forecast updates for unemployment are negative. I document that this January optimism about the new calendar year is detrimental to forecast accuracy. To empirically analyze Okun's law, I also propose a periodic test regression, and its application provides more support for this law.

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doi.org/10.1002/for.2670, hdl.handle.net/1765/129319
Journal of Forecasting
Department of Econometrics

Franses, P. H. (2020). Correcting the January optimism effect. Journal of Forecasting, 39(6), 927–933. doi:10.1002/for.2670