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How Accurate are Government Forecasts of Economic Fundamentals? The Case of Taiwan

Chia-Lin Chang (), Philip Hans Franses and Michael McAleer

No 720, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: A government's ability to forecast key economic fundamentals accurately can affect business confidence, consumer sentiment, and foreign direct investment, among others. A government forecast based on an econometric model is replicable, whereas one that is not fully based on an econometric model is non-replicable. Governments typically provide non-replicable forecasts (or, expert forecasts) of economic fundamentals, such as the inflation rate and real GDP growth rate. In this paper, we develop a methodology to evaluate non-replicable forecasts. We argue that in order to do so, one needs to retrieve from the non-replicable forecast its replicable component, and that it is the difference in accuracy between these two that matters. An empirical example to forecast economic fundamentals for Taiwan shows the relevance of the proposed methodological approach. Our main finding is that it is the undocumented knowledge of the Taiwanese government that reduces forecast errors substantially.

Keywords: Government forecasts; generated regressors; replicable government forecasts; non- replicable government forecasts; initial forecasts; revised forecasts (search for similar items in EconPapers)
JEL-codes: C53 C22 E27 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for
Date: 2010-08
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Related works:
Journal Article: How accurate are government forecasts of economic fundamentals? The case of Taiwan (2011) Downloads
Working Paper: How Accurate are Government Forecasts of Economic Fundamentals? The Case of Taiwan (2010) Downloads
Working Paper: How Accurate are Government Forecasts of Economic Fundamentals? The Case of Taiwan (2009) Downloads
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