Macroeconomic Forecasting: Debunking a Few Old Wives' Tales
AbstractThe forecasting profession, especially when producing forecasts intended to support economic policy, does not currently enjoy a good reputation. Complaints are sometimes voiced about its lack of scientific discipline, which in turn implies that the forecast results may be viewed as arbitrary. At other times, it is the excessively mechanical nature of the forecasting process which is criticised, on the grounds that it prevents a proper evaluation of any information concerning changes that alter the functioning of the economic system. Moreover, the use of structural models is often deemed superfluous, or even dangerous, and reduced forms are suggested as a preferable alternative. Drawing on the actual forecasting experience at the Bank of Italy, this paper argues that these views stem largely from a biased perception of how forecasting works, what it consists of and which goals it pursues. In particular, forecasting does not simply amount to producing a set of figures: rather, it aims at assembling a fullyfledged view – one may call it a "story behind the figures" – of what could happen: a story that has to be internally consistent, whose logical plausibility can be assessed, whose structure is sufficiently articulated to allow one to make a systematic comparison with the wealth of information that accumulates as time goes by. This implies that the forecasts are not the result of a black-box process that completely lacks discipline; neither are they the outcome of a purely mechanical process that cannot take new information into account. This paper tries to show that forecasting can be rigorous, not mechanical, informative, and useful even in the face of unprecedented situations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by OECD Publishing,CIRET in its journal Journal of Business Cycle Measurement and Analysis.
Volume (Year): 2007 (2007)
Issue (Month): 3 ()
Other versions of this item:
- Stefano Siviero & Daniele Terlizzese, 2001. "Macroeconomic forecasting: Debunking a few old wives' tales," Temi di discussione (Economic working papers) 395, Bank of Italy, Economic Research and International Relations Area.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999.
"Monetary policy shocks: What have we learned and to what end?,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148
- Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
- Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
- Favero, C. & Hendry, D., 1990. "Testing The Lucas Critique: A Review," Economics Series Working Papers 99101, University of Oxford, Department of Economics.
- Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- Leamer, Edward E, 1983.
"Let's Take the Con Out of Econometrics,"
American Economic Review,
American Economic Association, vol. 73(1), pages 31-43, March.
- Raffaele Miniaci & Guglielmo Weber, 1996.
"The Italian recession of 1993: Aggregate implications of microeconomic evidence,"
IFS Working Papers
W96/09, Institute for Fiscal Studies.
- Raffaele Miniaci & Guglielmo Weber, 1999. "The Italian Recession Of 1993: Aggregate Implications Of Microeconomic Evidence," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 237-249, May.
- Stefano Siviero & Daniele Terlizzese & Ignazio Visco, 1999.
"Are model-based inflation forecasts used in monetary policymaking? A case study,"
Temi di discussione (Economic working papers)
357, Bank of Italy, Economic Research and International Relations Area.
- Siviero, S. & Terlizzese, D. & Visco, I., 1999. "Are Model-Based Inflation Forecasts Used in Monetary Policymaking? A Case Study," Papers 357, Banca Italia - Servizio di Studi.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Francis X. Diebold, 1997.
"The past, present, and future of macroeconomic forecasting,"
97-20, Federal Reserve Bank of Philadelphia.
- Francis X. Diebold, 1998. "The Past, Present, and Future of Macroeconomic Forecasting," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 175-192, Spring.
- Francis X. Diebold, 1997. "The Past, Present, and Future of Macroeconomic Forecasting," NBER Working Papers 6290, National Bureau of Economic Research, Inc.
- Mestre, Ricardo & McAdam, Peter, 2008.
"Is forecasting with large models informative? Assessing the role of judgement in macroeconomic forecasts,"
Working Paper Series
0950, European Central Bank.
- Ricardo Mestre & Peter McAdam, 2011. "Is forecasting with large models informative? Assessing the role of judgement in macroeconomic forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(3), pages 303-324, April.
- Fabio Busetti, 2001. "The use of preliminary data in econometric forecasting: an application with the Bank of Italy Quarterly Model," Temi di discussione (Economic working papers) 437, Bank of Italy, Economic Research and International Relations Area.
- Michele Caivano & Lisa Rodano & Stefano Siviero, 2010. "The transmission of the global financial crisis to the Italian economy. A counterfactual analysis, 2008-2010," Questioni di Economia e Finanza (Occasional Papers) 64, Bank of Italy, Economic Research and International Relations Area.
- Matteo Bugamelli & Patrizio Pagano, 2001.
"Barriers to investment in ICT,"
Temi di discussione (Economic working papers)
420, Bank of Italy, Economic Research and International Relations Area.
- Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2004.
"Money Demand in theEuroArea: Do National Differences Matter?,"
0404019, EconWPA, revised 24 Apr 2004.
- Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2001. "Money demand in the euro area: do national differences matter?," Temi di discussione (Economic working papers) 405, Bank of Italy, Economic Research and International Relations Area.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.