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A new approach for evaluating economic forecasts

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Author Info

  • Tara M. Sinclair

    ()
    (The George Washington University)

  • H. O. Stekler

    ()
    (The George Washington University)

  • Warren Carnow

    ()
    (The George Washington University)

Abstract

This paper presents a recently developed approach for evaluating economic forecasts. Previously, univariate methods were used to evaluate the forecasts of individual variables. However, many macroeconomic variables are forecast at the same time to describe the state of the economy. It is, therefore, appropriate to use a multivariate methodology in evaluating these forecasts. Our approach uses VARs and distance measures. It is applied to the Survey of Professional Forecasters (SPF). Our contributions are the application of the methodology for evaluating multivariate forecasts to the SPF, measuring accuracy, and testing for bias within this framework. We also consider whether there are forecasting performance asymmetries over the business cycle.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 3 ()
Pages: 2332-2342

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Handle: RePEc:ebl:ecbull:eb-12-00339

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Keywords: Forecast Evaluation; Survey of Professional Forecasters; Business Cycle; Mahalanobis Distance;

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References

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  1. Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, 1997. "Evaluating density forecasts," Working Papers 97-6, Federal Reserve Bank of Philadelphia.
  2. Tara M. Sinclair & Edward N. Gamber & H.O. Stekler & Elizabeth Reid, 2008. "Jointly Evaluating the Federal Reserve’s Forecasts of GDP Growth and Inflation," Working Papers 2008-002, The George Washington University, Department of Economics, Research Program on Forecasting, revised Mar 2011.
  3. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
  4. Tara M. Sinclair & H.O. Stekler & Warren Carnow, 2012. "Evaluating A Vector Of The Fed’S Forecasts," Working Papers 2012-002, The George Washington University, Department of Economics, Research Program on Forecasting.
  5. Tara Sinclair & Frederick L. Joutz, 2009. "Can the Fed Predict the State of the Economy?," Working Papers 2008-06, The George Washington University, Institute for International Economic Policy.
  6. Jacob A. Mincer & Victor Zarnowitz, 1969. "The Evaluation of Economic Forecasts," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 1-46 National Bureau of Economic Research, Inc.
  7. Harvey, David I. & Newbold, Paul, 2003. "The non-normality of some macroeconomic forecast errors," International Journal of Forecasting, Elsevier, vol. 19(4), pages 635-653.
  8. Groen, Jan J.J. & Kapetanios, George & Price, Simon, 2009. "A real time evaluation of Bank of England forecasts of inflation and growth," International Journal of Forecasting, Elsevier, vol. 25(1), pages 74-80.
  9. Tara Sinclair & H. O. Stekler & L. Kitzinger, 2010. "Directional forecasts of GDP and inflation: a joint evaluation with an application to Federal Reserve predictions," Applied Economics, Taylor & Francis Journals, vol. 42(18), pages 2289-2297.
  10. Lahiri, Kajal & Teigland, Christie, 1987. "On the normality of probability distributions of inflation and GNP forecasts," International Journal of Forecasting, Elsevier, vol. 3(2), pages 269-279.
  11. Holden, K & Peel, D A, 1990. "On Testing for Unbiasedness and Efficiency of Forecasts," The Manchester School of Economic & Social Studies, University of Manchester, vol. 58(2), pages 120-27, June.
  12. Baghestani, Hamid, 1994. "Evaluating multiperiod survey forecasts of real net exports," Economics Letters, Elsevier, vol. 44(3), pages 267-272.
  13. Christopher A. Sims, 2002. "The Role of Models and Probabilities in the Monetary Policy Process," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 1-62.
  14. Chanont Banternghansa & Michael W. McCracken, 2009. "Forecast disagreement among FOMC members," Working Papers 2009-059, Federal Reserve Bank of St. Louis.
  15. Joutz, Fred & Stekler, H. O., 2000. "An evaluation of the predictions of the Federal Reserve," International Journal of Forecasting, Elsevier, vol. 16(1), pages 17-38.
  16. Baghestani, Hamid, 2006. "An evaluation of the professional forecasts of U.S. long-term interest rates," Review of Financial Economics, Elsevier, vol. 15(2), pages 177-191.
  17. Fred Joutz & Michael P. Clements & Herman O. Stekler, 2007. "An evaluation of the forecasts of the federal reserve: a pooled approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 121-136.
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Cited by:
  1. Laurence M. Ball & João Tovar Jalles & Prakash Loungani, 2014. "Do Forecasters Believe in Okun’s Law? An Assessment of Unemployment and Output Forecasts," IMF Working Papers 14/24, International Monetary Fund.

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