The Unassuming Economist

New post from livewire by JOEY MUI of Merlon Capital

“The problem with precision

Most forecasts begin with a starting point which is often anchored to current data. Forecasters tend to modestly extrapolate up or down from this level. This tendency to stick close to current conditions, or consensus views, limits a forecaster’s ability to comprehend the full range of possibilities or the impacts of more extreme circumstances.

Research by the International Monetary Fund explored the ability of economists to predict recessions between 1992 to 2014. It was a disaster. Economists consistently failed to predict a recession in GDP by a significant margin. Even as conditions deteriorated, economists stubbornly anchored their forecasts to the preceding non-recessionary period and adjusted their predictions downwards too little, too late.”

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