Sources of turning point forecast errors

M. H. Schnader and Herman Stekler

Applied Economics Letters, 1998, vol. 5, issue 8, 519-521

Abstract: Little attention has been devoted to explaining the failure to predict the turning points at the beginning of recessions. This note builds on a model that showed that a turning point might not be predicted if forecasters' prior probabilities of a recession were low. Costs associated with various types of errors might also produce this result. A model is developed and then applied to a particular US business cycle indicator. The results show that costs as well as priors may contribute to this type of forecasting error.

Date: 1998
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DOI: 10.1080/135048598354465

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