Evaluating the forecast quality of GDP components

Paulo Júlio, Pedro M. Esperança () and João C. Fonseca ()
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Pedro M. Esperança: Currently M.Sc. student at the University of Oxford. This article was written while the author was visiting at the Gabinete de Estratégia e Estudos, Portuguese Ministry of Economy and Employment
João C. Fonseca: Gabinete de Estratégia e Estudos, Portuguese Ministry of Economy and Employment

GEE Papers from Gabinete de Estratégia e Estudos, Ministério da Economia

Abstract: We assess and compare the quality of forecasts issued for Portugal, at several time spans. Our analysis, covering the 2002-2010 period, focuses on real GDP growth and the corresponding expenditure components. We use a scaled statistic to compare the forecast accuracy of GDP components with different volatility levels, and explore the contributions of expenditure components to the GDP forecast error. Moreover, we propose two new statistics – termed Mean of Total Weighted Absolute Error and Mean of Total Weighted Squared Error – to evaluate the overall accuracy of components' predictions. The results suggest that GDP forecasts are generally optimistic at longer horizons (1-year ahead predictions), mainly due to overly optimistic forecasts in investment and exports. At shorter horizons (same-year predictions), GDP forecasts are more accurate, but this is achieved with relatively large errors in components' predictions, whose effects tend to cancel out.

Keywords: Forecast evaluation; GDP expenditure components; Contributions to GDP growth; Mean of total weighted absolute error; Mean of total weighted squared error; Portugal (search for similar items in EconPapers)
Pages: 18 pages
Date: 2011-10, Revised 2011-10
New Economics Papers: this item is included in nep-cba and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.gee.gov.pt/RePEc/WorkingPapers/GEE_PAPERS_41.pdf First version, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:mde:wpaper:0041

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