Are Forecast Updates Progressive?

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

No 2011-03, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: Many macro-economic forecasts and forecast updates, such as those from the IMF and OECD, typically involve both a model component, which is replicable, as well as intuition (namely, expert knowledge possessed by a forecaster), which is non-replicable. . Learning from previous mistakes can affect both the replicable component of a model as well as intuition. If learning, and hence forecast updates, are progressive, forecast updates should generally become more accurate as the actual value is approached. Otherwise, learning and forecast updates would be neutral. The paper proposes a methodology to test whether macro-economic forecast updates are progressive, where the interaction between model and intuition is explicitly taken into account. The data set for the empirical analysis is for Taiwan, where we have three decades of quarterly data available of forecasts and their updates of two economic fundamentals, namely the inflation rate and real GDP growth rate. The empirical results suggest that the forecast updates for Taiwan are progressive, and that progress can be explained predominantly by improved intuition.

Keywords: Macro-economic forecasts; econometric models; intuition; learning; progressive forecast updates; forecast errors. (search for similar items in EconPapers)
JEL-codes: C22 C53 E27 E37 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-ecm and nep-for
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https://eprints.ucm.es/id/eprint/12434/1/1103.pdf (application/pdf)

Related works:
Journal Article: Are forecast updates progressive? (2013)
Working Paper: Are Forecast Updates Progressive? (2013)
Working Paper: Are Forecast Updates Progressive? (2013)
Working Paper: Are Forecast Updates Progressive? (2011)
Working Paper: Are Forecast Updates Progressive? (2010)
Working Paper: Are Forecast Updates Progressive? (2010)
Working Paper: Are Forecast Updates Progressive? (2010)
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