Banco de España macroeconomic projections: comparison with an econometric model

The forecasting of macroeconomic variables is an important task of the Banco de España for the satisfactory monitoring of the economic situation. Macroeconomic projections are made by combining various econometric models with expert judgement. This article compares the Spanish GDP growth and inflation projections published by the Banco de España with those that would be obtained automatically from an alternative econometric model. This exercise reveals that the Banco de España’s projections surpass those of the econometric model in terms of how closely they coincide with the variables predicted (GDP and inflation), i.e. they have smaller prediction forecasting errors. This confirms that the information provided by expert opinion improves the accuracy of projections, above all in short time horizons and, in particular, in predictions of GDP growth. It is also found that, in the past decade, the accurate prediction of inflation has been considerably more difficult than that of GDP growth.