The Unassuming Economist | Fiscal Forecasting Follies: Private Sector vs. Government

Showing posts with label Forecasting Forum. Show all posts

Friday, June 19, 2015

Fiscal Forecasting Follies: Private Sector vs. Government

Government forecasts of budget deficits invoke considerable skepticism. A prominent critic is Jeff Frankel who mocks the ‘‘budgetary wishful thinking’’ of many government agencies. Frankel notes that during the 2000s, the U.S. Office of Management and Budget ‘‘turned out optimistic forecasts’’ for eight years in a row; likewise, in 2000, the Greek government projected that its budget deficits would shrink below 2 percent of GDP within a year, a far cry from the outcome of 4–5 percent of GDP. Such examples have tended to be the rule rather than the exception. Private sector forecasters are presumably less subject to the political pressures that governments face. How well do they do? My new paper with Joao Jalles and Iskandar Karibzhanov presents evidence on the quality of private sector fiscal forecasts.

Posted by Prakash Loungani at 2:44 PM

Labels: Forecasting Forum

Tuesday, February 3, 2015

Persistent Overoptimism about Economic Growth

Since 2007, Federal Open Market Committee participants have been persistently too optimistic about future U.S. economic growth. Real GDP growth forecasts have typically started high, but then are revised down over time as the incoming data continue to disappoint. Continue reading the FRBSF Economic Letter here.

Posted by Prakash Loungani at 1:12 PM

Labels: Forecasting Forum

Monday, February 2, 2015

On Groundhog Day, Honoring A Forecasting Giant

This Groundhog Day I want to honor economic forecasters—and one in particular, Herman Stekler—rather than make fun of them, which is what I’ve tended to do on past Groundhog Days. Herman has had a 60-year career in forecasting and is still making predictions on everything that moves, including Super Bowl games. He recalls that the interview for his first job at Berkeley “occurred during the famous NY Giants–Baltimore Colts championship football game of 1959. I was a Giants fan, and when I left my hotel room they were ahead; I forecasted the final outcome incorrectly.”

Herman believes that forecasters should predict recessions early and often: “… the cost of a recession is so great that a forecaster should never miss one … Some people argue that turning points are unpredictable. I disagree. I have never had trouble predicting recessions. In fact, I have predicted n+x of the last n recessions.”

Herman’s colleagues and friends organized a conference on his 80th birthday and the proceedings have just been published in a special issue of the International Journal of Forecasting. The conference versions of the papers are available here.

The issue has an article by Fred Joutz, Tara Sinclair and me, which summarizes Herman’s extraordinary career—the early work on forecasting turning points and why forecasters seem to miss nearly every one of them; the first forecasting assessments of the Fed’s Greenbook forecasts; and much more.

Forecasting is difficult and I honor the people who have to do it. My own interest in the topic was triggered by my awful forecasts for growth in the Asian crisis economies in 1997-98. I have continued my own “astonishing record of complete failure” by completely failing to forecast the recent sharp decline in oil prices. I did call the Patriots-Seahawks outcome correctly.

Posted by Prakash Loungani at 2:21 PM

Labels: Forecasting Forum

Tuesday, April 15, 2014

“There will be growth in the spring”: How well do economists predict turning points?

Forecasters have a poor reputation for predicting recessions. This Vox column quantifies their ability to do so, and explores several reasons why both official and private forecasters may fail to call a recession before it happens.

Read the full article…

Posted by Prakash Loungani at 12:19 PM

Labels: Forecasting Forum