On the optimality of expert-adjusted forecasts

Henk Kranendonk, Debby Lanser () and Philip Hans Franses
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Debby Lanser: CPB Netherlands Bureau for Economic Policy Analysis

No 92, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: Official forecasts of international institutions are never purely model-based. Preliminary results of models are adjusted with expert opinions. What is the impact of these adjustments for the forecasts? Are they necessary to get 'optimal' forecasts? When model-based forecasts are adjusted by experts, the loss function of these forecasts is not a mean squared error loss function. In fact, the overall loss function is unknown. To examine the quality of these forecasts, one can rely on the tests for forecast optimality under unknown loss function as developed in Patton and Timmermann (2007). We apply one of these tests to ten variables for which we have model-based forecasts and expert-adjusted forecasts, all generated by the Netherlands Bureau for Economic Policy Analysis (CPB). For almost all variables the added expertise yields better forecasts in terms of fit. In terms of optimality, the effect of adjustments for the forecasts is limited, because for most variables the assumption that the forecast are not optimal can be rejected for both the model-based and the expert-adjusted forecasts.

JEL-codes: C53 E17 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-for
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Citations: View citations in EconPapers (5)

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Working Paper: On the optimality of expert-adjusted forecasts (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:92

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