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How reliable are forecasts of GDP growth and inflation for countries with limited coverage?

  • Krkoska, Libor
  • Teksoz, Utku

This paper analyses the performance of GDP growth and inflation forecasts for 25 transition countries between 1994 and 2007, as provided by 13 international institutions, including multilateral, private and academic forecasters. The empirical results show that there is a positive correlation between the number of forecasters covering a given country and the forecast accuracy. Simple combined forecasts are shown to be unbiased and more accurate than most of the individual forecasters, although also inefficient. However, only a few institutions provide efficient and unbiased forecasts, with just one out of 13 forecasters providing both unbiased and efficient forecasts of both GDP growth and inflation in the observed period. The directional analysis shows a correct forecast of the change in the forecast indicator in over two thirds of cases. However, the eventual outcome is within the range of available forecasts in less than half of the cases, with more than 40% of outcomes for GDP growth above the highest forecast. Encouragingly, forecasts are shown to be improving over time and becoming more accurate with the increase in the number of forecasting institutions - forecast accuracy measured by mean absolute error improves by 0.3 percentage points for growth and by 0.2 percentage points for inflation for each additional institution providing forecasts.

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Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 33 (2009)
Issue (Month): 4 (December)
Pages: 376-388

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Handle: RePEc:eee:ecosys:v:33:y:2009:i:4:p:376-388
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  1. Libor Krkoska & Utku Teksoz, 2005. "Accuracy of growth forecasts for transition countries: Assessing ten years of EBRD forecasting," Working Papers 94, European Bank for Reconstruction and Development, Office of the Chief Economist.
  2. Fildes, Robert & Stekler, Herman, 2002. "Reply to the comments on 'The state of macroeconomic forecasting'," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 503-505, December.
  3. Vassiliki Koutsogeorgopoulou, 2000. "A Post-Mortem on Economic Outlook Projections," OECD Economics Department Working Papers 274, OECD Publishing.
  4. Pesaran, M Hashem & Timmermann, Allan, 1995. " Predictability of Stock Returns: Robustness and Economic Significance," Journal of Finance, American Finance Association, vol. 50(4), pages 1201-28, September.
  5. Michael J. Artis, 1996. "How Accurate Are the Imf's Short-Term Forecasts? Another Examination of the World Economic Outlook," IMF Working Papers 96/89, International Monetary Fund.
  6. Harvey, David I. & Newbold, Paul, 2003. "The non-normality of some macroeconomic forecast errors," International Journal of Forecasting, Elsevier, vol. 19(4), pages 635-653.
  7. Ash, J. C. K. & Smyth, D. J. & Heravi, S. M., 1990. "The accuracy of OECD forecasts of the international economy : Demand, output and prices," International Journal of Forecasting, Elsevier, vol. 6(3), pages 379-392, October.
  8. Roy Batchelor & Pami Dua, 1995. "Forecaster Diversity and the Benefits of Combining Forecasts," Management Science, INFORMS, vol. 41(1), pages 68-75, January.
  9. Allan Timmermann, 2006. "An Evaluation of the World Economic Outlook Forecasts," IMF Working Papers 06/59, International Monetary Fund.
  10. Roy Batchelor, 2001. "How useful are the forecasts of intergovernmental agencies? The IMF and OECD versus the consensus," Applied Economics, Taylor & Francis Journals, vol. 33(2), pages 225-235.
  11. Fildes, Robert & Stekler, Herman, 2002. "The state of macroeconomic forecasting," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 435-468, December.
  12. 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.
  13. Holden, K & Peel, D A, 1990. "On Testing for Unbiasedness and Efficiency of Forecasts," The Manchester School of Economic & Social Studies, University of Manchester, vol. 58(2), pages 120-27, June.
  14. Krkoska, Libor & Teksoz, Utku, 2007. "Accuracy of GDP growth forecasts for transition countries: Ten years of forecasting assessed," International Journal of Forecasting, Elsevier, vol. 23(1), pages 29-45.
  15. Libor Krkoska & Utku Teksoz, 2006. "Forecasting inflation for transition countries: How accurate are the EBRD forecasts?," Working Papers 98, European Bank for Reconstruction and Development, Office of the Chief Economist.
  16. Pesaran, M.H. & Timmermann, A., 1990. "A Simple, Non-Parametric Test Of Predictive Performance," Cambridge Working Papers in Economics 9021, Faculty of Economics, University of Cambridge.
  17. 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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