Disagreement over the Nature of Macroeconomic Shocks

We document that the majority of professional forecasters exhibit rationality in directional forecast revisions of key macroeconomic variables. Exploiting this property, we use the forecast revisions to construct a novel measure of disagreement over whether shocks to aggregate demand or aggregate supply are dominating in a given period of time. Unlike disagreement in terms of numerical values of forecasts, disagreement over which shocks are prevailing is procyclical, falling significantly during recessions. This disagreement can be useful to explain cross-sectional extreme forecasts, with forecasters who disagree with the consensus about the dominant type of shock having worse nowcasts for inflation. Our findings suggest that the qualitative disagreement over the nature of macroeconomic shocks contains distinct information from quantitative disagreement in terms of numerical forecasts of macroeconomic variables and from the overall level of macroeconomic uncertainty.