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Methodological issues in forecasting: Insights from the egregious business forecast errors of late 1930

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Author Info

  • Robert Goldfarb
  • H. O. Stekler
  • Joel David

Abstract

This paper examines some economic forecasts made in late 1930 that were intended to predict economic activity in the United States in order to shed light on several methodological issues. We document that these forecasts were extremely optimistic, predicting that the recession in the US would soon end, and that 1931 would show a recovery. These forecasts displayed egregious errors, because 1931 witnessed the largest negative growth rate for the US economy in any year in the twentieth century. A specific question is what led forecasters to make such serious and substantial empirical errors. A second more general issue involves the methodology of forecasting. The 1930 forecasts were sometimes based on explicit analogies with previous serious business cycles. Modern forecasting approaches are based on techniques that may not be recognized as analogies. Using the 1930 forecasts, we examine the implicit-analogy content of forecasts, and what might render such implicit analogies valid or invalid. This 1930 forecast example also resonates beyond the confines of economic methodology because forecasts about the Great Depression are of continuing interest to the profession at large, and we produce a forecast series not previously available.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/13501780500343524
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Economic Methodology.

Volume (Year): 12 (2005)
Issue (Month): 4 ()
Pages: 517-542

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Handle: RePEc:taf:jecmet:v:12:y:2005:i:4:p:517-542

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Related research

Keywords: Analogies; qualitative forecasts; great depression; forecast evaluation; business cycles;

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Cited by:
  1. Herman O. Stekler & Raj M. Talwar, 2011. "Economic Forecasting in the Great Recession," Working Papers 2011-005, The George Washington University, Department of Economics, Research Program on Forecasting.
  2. Kathryn Lundquist & H.O. Stekler, 2011. "The Forecasting Performance of Business Economists During the Great Recession," Working Papers 2011-004, The George Washington University, Department of Economics, Research Program on Forecasting.
  3. Green, Kesten C. & Armstrong, J. Scott, 2007. "Structured analogies for forecasting," International Journal of Forecasting, Elsevier, vol. 23(3), pages 365-376.
  4. Stekler, H.O., 2007. "The future of macroeconomic forecasting: Understanding the forecasting process," International Journal of Forecasting, Elsevier, vol. 23(2), pages 237-248.

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