Forecasting

Over-optimistic forecasts are not innocuous

Beaudry and Willems, using a broad sample of 189 countries, find that recessions, fiscal problems, as well as Balance of Payments-difficulties are more likely to arise in economies for which past growth forecasts have been overly optimistic. Optimism leads to future crisis through higher debt accumulation: both the public and private sector are motivated to borrow more by buoyant future economic prospects.
On the Macroeconomic Consequences of Over-Optimism
Authors: Paul Beaudry, Tim Willems
From: IMF

The role of behavioral factors

An and al. find that the ability of forecasters to predict turning points is limited and attribute this limitation to three possible reasons: a) lack of enough information; b) forecasters are reluctant to call a recession out of fear of damaging their reputation; c) forecasters hold on to their prior beliefs which they update only very slowly.

How Well Do Economists Forecast Recessions?
Authors: Zidong An, João Tovar Jalles, Prakash Loungani
From: IMF

Forecasting performance after the Great Recession

Based on a panel consisting annual data ranging from 1971 to 2016 we empirically analyse 17 different forecasts for [German] growth and inflation stemming from 14 different institutions. There are some, albeit small differences in forecast accuracy between both time periods. The respective quantitative error measures (slightly) increase after the crisis. As regards growth forecasts, we document that before the crisis the number of over estimations exceeded the number of underestimations considerably, while for the time after the crisis the opposite is true. This could be a hint to a changed forecaster behaviour. Moreover, an increased variance of forecasts after the crisis may indicate a more divided forecaster community.

Has Macroeconomic Forecasting changed after the Great Recession? – Panel-based Evidence on Accuracy and Forecaster Behaviour from Germany
Authors: Jörg Döpke, Ulrich Fritsche, Karsten Müller
From: University of Applied Sciences Merseburg, Universität Hamburg