Evaluating Macroeconomic Forecasts: A Review of Some Recent Developments

Philip Hans Franses, Michael McAleer and Rianne Legerstee

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: Macroeconomic forecasts are frequently produced, published, discussed and used. The formal evaluation of such forecasts has a long research history. Recently, a new angle to the evaluation of forecasts has been addressed, and in this review we analyse some recent developments from that perspective. The literature on forecast evaluation predominantly assumes that macroeconomic forecasts are generated from econometric models. In practice, however, most macroeconomic forecasts, such as those from the IMF, World Bank, OECD, Federal Reserve Board, Federal Open Market Committee (FOMC) and the ECB, are based on econometric model forecasts as well as on human intuition. This seemingly inevitable combination renders most of these forecasts biased and, as such, their evaluation becomes non-standard. In this review, we consider the evaluation of two forecasts in which: (i) the two forecasts are generated from two distinct econometric models; (ii) one forecast is generated from an econometric model and the other is obtained as a combination of a model, the other forecast, and intuition; and (iii) the two forecasts are generated from two distinct combinations of different models and intuition. It is shown that alternative tools are needed to compare and evaluate the forecasts in each of these three situations. These alternative techniques are illustrated by comparing the forecasts from the Federal Reserve Board and the FOMC on inflation, unemployment and real GDP growth.

Keywords: Macroeconomic forecasts; econometric models; human intuition; biased forecasts; forecast performance; forecast evaluation; forecast comparison (search for similar items in EconPapers)
JEL-codes: C22 C51 C52 C53 E27 E37 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-03-01
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Evaluating Macroeconomic Forecasts: A Review of Some Recent Developments (2011)
Working Paper: Evaluating Macroeconomic Forecasts: A Review of Some Recent Developments (2011)
Working Paper: Evaluating Macroeconomic Forecast: A Review of Some Recent Developments (2010)
Working Paper: Evaluating Macroeconomic Forecasts: A Review of Some Recent Developments (2010)
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