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Consensus and Uncertainty in Economic Prediction

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  • Victor Zarnowitz
  • Louis A. Lambros
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    Abstract

    The usual practice in economic forecasting is to report point predictions without specifying the attached probabilities. Periodic surveys of such forecasts produce group averages, which are taken to indicate the "consensus" of experts. Measures of the dispersion of individual forecasts around these averages are interpreted as indicating "uncertainty." However, consensus is best defined as the degree of agreement among the corresponding point predictions reported by different forecasters, while uncertainty is properly understood as referring to the diffuseness of the distributions of probabilities that individual forecasters attach to the different possible values of an economic variable. The NBER-ASA quarterly economic outlook surveys provide unique informationon probabilistic forecast distributions reported by a large number of individuals for changes in GNP and the implicit price deflator in 1969-81. These data permit comparisons of related point and probability forecasts from the same sources.The matched mean point forecasts and mean probability forecasts are found to agree closely. Standard deviations of point forecasts are generally smaller than the mean standard deviations of the predictive probability distributions for the same targets. Thus the former tend to understate uncertainty as measured by the latter. This is so particularly for short horizons.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1171.

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    Date of creation: Jul 1983
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    Publication status: published as Zarnowitz, Victor and Louis A. Lambros. "Consensus and Uncertainty in Economic Prediction," Journal of Political Economy, Vol. 95, No. 3, pp. 591-621, June 1987.
    Handle: RePEc:nbr:nberwo:1171

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    1. Stekler, H O, 1969. "Evaluation of Econometric Inventory Forecasts," The Review of Economics and Statistics, MIT Press, vol. 51(1), pages 77-83, February.
    2. Rosanne Cole, 1969. "Errors In Provisional Estimates Of Gross National Product," NBER Books, National Bureau of Economic Research, Inc, number cole69-1, octubre-d.
    3. Zarnowitz, Victor, 1982. "On Functions, Quality, and Timeliness of Economic Information," The Journal of Business, University of Chicago Press, vol. 55(1), pages 87-119, January.
    4. Victor Zarnowitz, 1982. "The Accuracy of Individual and Group Forecasts from Business Outlook Surveys," NBER Working Papers 1053, National Bureau of Economic Research, Inc.
    5. Victor Zarnowitz, 1983. "Rational Expectations and Macroeconomic Forecasts," NBER Working Papers 1070, National Bureau of Economic Research, Inc.
    6. Peter A. Morris, 1977. "Combining Expert Judgments: A Bayesian Approach," Management Science, INFORMS, vol. 23(7), pages 679-693, March.
    7. Levi, Maurice D & Makin, John H, 1980. "Inflation Uncertainty and the Phillips Curve: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 70(5), pages 1022-27, December.
    8. Victor Zarnowitz, 1980. "On Functions, Quality, and Timeliness of Economic Information," NBER Working Papers 0608, National Bureau of Economic Research, Inc.
    9. Mullineaux, Donald J, 1980. "Unemployment, Industrial Production, and Inflation Uncertainty in the United States," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 163-69, May.
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