Has Macro-forecasting Failed?, Issue 3867
The answer to this question depends on the treatment of logically and empirically prior questions about (1) what the forecasts are and why they are needed, and (2) what can reasonably be expected of them. Further, what forecasters can and should do cannot be established without studying the record and assessing the probable future of their endeavors. Accordingly, the basic approach taken in this paper is to ask of the assembled data what professional standards have economists engaged in macro-forecasting been able to attain and maintain in competing with each other and alternative methods. There is much disenchantment with economic forecasting. The difficult question is how much of it is due to unacceptably poor performance and how much to unrealistically high prior expectations. My argument is that the latter is a major factor. In times of continuing expansion with restrained inflation, as in the 1960s, macro-forecasts looked good and economists were held in high repute. Later when inflation accelerated, serious recessions reappeared, and long-term growth of productivity and total output slackened, the errors of macroeconomic models and forecasts, and the old and new controversies among the economists, received increased public attention. The reputation of the profession suffered, and the interest of academic economists in forecasting, never very strong, weakened still more. Yet the performance of professional economic forecasters, when assessed proper relative terms, has been considerably better in recent times than in the earlier post-World War II period. What happened is that the improvements fell short of enabling the forecasters to cope with the new problems they faced.
What people are saying - Write a review
We haven't found any reviews in the usual places.
accurate aggregate demand aggregate supply aggregative variables annual forecasts ASA-NBER survey average Bureau of Economic business cycle turning business economists BVAR Model Chase columns contractions countercyclical cyclical econometric models Econometric service econometricians economic forecasters Economic Outlook Survey Economic Research Eleven sets BVAR expansion expected extrapolations false signals forecasts are covered Fortune magazine Harris Bank horizon IBM N2 inflation Keynesian last known lines l-4 Lupoletti and Webb MACRO-FORECASTING FAILED macroeconomic forecasting McNees mean absolute errors mean errors mean square errors monetarist monetary monetary base Multiperiod Forecasts naive models National Bureau NBER nominal and real overestimated percentage changes period PJBIPTH predictions professional quarterly quarters ahead RCNP real GNP recession relative accuracy RGNP RMSE ratios root mean square sets of forecasts slowdowns sources span subperiods Table turning points UCLA vector autoregressive York Forecasters Club Zarnowitz l979