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Some lessons from the financial crisis for the economic analysis

  • Kenny, Geoff
  • Morgan, Julian

The economics profession in general, and economic forecasters in particular, have faced some understandable criticism for their failure to predict the timing and severity of the recent economic crisis. In this paper, we offer some assessment of the performance of the Economic Analysis conducted at the ECB both in the run up to and since the onset of the crisis. Drawing on this assessment, we then offer some indications of how the analysis of economic developments could be improved looking forward. The key priorities identifi ed include the need to: i) extend existing tools and/or develop new tools to account for important feedback mechanisms, for instance, improved real-fi nancial linkages and non-linear dynamics; ii) develop ways to handle the complexity arising from the presence of multiple models and alternative economic paradigms; and iii) given the limitations of point forecasts, to further develop risk and scenario analysis around baseline projections. JEL Classification: C43, D91, E31, E52, E58

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Paper provided by European Central Bank in its series Occasional Paper Series with number 130.

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Date of creation: Oct 2011
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Handle: RePEc:ecb:ecbops:20110130
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  1. Hubrich, Kirstin & Tetlow, Robert J., 2014. "Financial stress and economic dynamics: the transmission of crises," Working Paper Series 1728, European Central Bank.
  2. Hall, Stephen G. & Mitchell, James, 2007. "Combining density forecasts," International Journal of Forecasting, Elsevier, vol. 23(1), pages 1-13.
  3. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
  4. Don Harding & Adrian Pagan, 2010. "Can We Predict Recessions?," NCER Working Paper Series 69, National Centre for Econometric Research.
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