A Simple Forecasting Accuracy Criterion Under Rational Expectations: Evidence From the World Economic Outlook and Time Series Models

José Barrionuevo

No 1992/048, IMF Working Papers from International Monetary Fund

Abstract: A simple criterion based on the properties of the forecast error is presented to evaluate the accuracy of forecasts. The efficiency conditions of an optimization problem are used to show that under rational expectations the standard statistical conditions are necessary, but not sufficient to ensure efficiency. This criterion is used to examine the accuracy of the World Economic Outlook projections of growth and inflation for the seven major industrial countries. Time series models are then estimated and the efficiency of the World Economic Outlook projections relative to a benchmark time series model is examined. A number of empirical tests suggest that the year ahead projections of growth and inflation in the World Economic Outlook are unbiased after 1982.

Keywords: WP; time series model; least squares; random walk; time series forecast; Theil inequality statistic TS; inflation error; q statistic test; models of inflation; forecast error; Inflation; Production growth; Rational expectations; Industrial sector (search for similar items in EconPapers)
Pages: 34
Date: 1992-06-01
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