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Evaluating the forecast quality of GDP components

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Author Info

  • Paulo Júlio

    ()
    (Gabinete de Estratégia e Estudos, Portuguese Ministry of Economy and Employment, and NOVA School of Business and Economics)

  • Pedro M. Esperança

    ()
    (Currently M.Sc. student at the University of Oxford. This article was written while the author was visiting at the Gabinete de Estratégia e Estudos, Portuguese Ministry of Economy and Employment)

  • João C. Fonseca

    ()
    (Gabinete de Estratégia e Estudos, Portuguese Ministry of Economy and Employment)

Abstract

We assess and compare the quality of forecasts issued for Portugal, at several time spans. Our analysis, covering the 2002-2010 period, focuses on real GDP growth and the corresponding expenditure components. We use a scaled statistic to compare the forecast accuracy of GDP components with different volatility levels, and explore the contributions of expenditure components to the GDP forecast error. Moreover, we propose two new statistics – termed Mean of Total Weighted Absolute Error and Mean of Total Weighted Squared Error – to evaluate the overall accuracy of components' predictions. The results suggest that GDP forecasts are generally optimistic at longer horizons (1-year ahead predictions), mainly due to overly optimistic forecasts in investment and exports. At shorter horizons (same-year predictions), GDP forecasts are more accurate, but this is achieved with relatively large errors in components' predictions, whose effects tend to cancel out.

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File URL: http://www.gee.min-economia.pt/RePEc/WorkingPapers/GEE_PAPERS_41.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação in its series GEE Papers with number 0041 Classification-C52, C53, E37.

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Length: 18 pages
Date of creation: Oct 2011
Date of revision: Oct 2011
Handle: RePEc:mde:wpaper:0041

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Keywords: Forecast evaluation; GDP expenditure components; Contributions to GDP growth; Mean of total weighted absolute error; Mean of total weighted squared error; Portugal;

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References

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  1. Vuchelen, Jef & Gutierrez, Maria-Isabel, 2005. "A direct test of the information content of the OECD growth forecasts," International Journal of Forecasting, Elsevier, vol. 21(1), pages 103-117.
  2. Fildes, Robert & Stekler, Herman, 2002. "The state of macroeconomic forecasting," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 435-468, December.
  3. Jacob A. Mincer, 1969. "Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance," NBER Books, National Bureau of Economic Research, Inc, number minc69-1, octubre-d.
  4. Prakash Loungani, 2000. "How Accurate Are Private Sector Forecasts--Cross-Country Evidence from Consensus Forecasts of Output Growth," IMF Working Papers 00/77, International Monetary Fund.
  5. Frederick L. Joutz, 1988. "Informational efficiency tests of quarterly macroeconometric GNP forecasts from 1976 to 1985," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 311-330, December.
  6. Hyndman, Rob J. & Koehler, Anne B., 2006. "Another look at measures of forecast accuracy," International Journal of Forecasting, Elsevier, vol. 22(4), pages 679-688.
  7. Öller, Lars-Erik & Barot, Bharat, 2000. "The Accuracy of European Growth and Inflation Forecasts," Working Paper 72, National Institute of Economic Research.
  8. Stekler, H O, 1972. "An Analysis of Turning Point Forecasts," American Economic Review, American Economic Association, vol. 62(4), pages 724-29, September.
  9. Wallis, Kenneth F, 1989. "Macroeconomic Forecasting: A Survey," Economic Journal, Royal Economic Society, vol. 99(394), pages 28-61, March.
  10. Ash, J. C. K. & Smyth, D. J. & Heravi, S. M., 1998. "Are OECD forecasts rational and useful?: a directional analysis," International Journal of Forecasting, Elsevier, vol. 14(3), pages 381-391, September.
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Cited by:
  1. Paulo Júlio & Pedro M. Esperança, 2012. "Evaluating the forecast quality of GDP components: An application to G7," GEE Papers 0047, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised Apr 2012.

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