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Evaluating the forecast quality of GDP components

Author

Listed:
  • 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.

Suggested Citation

  • Paulo Júlio & Pedro M. Esperança & João C. Fonseca, 2011. "Evaluating the forecast quality of GDP components," GEE Papers 0041 Classification-C52, , Gabinete de Estratégia e Estudos, Ministério da Economia, revised Oct 2011.
    • Handle: RePEc:mde:wpaper:0041
    as

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    File URL: https://www.gee.gov.pt/RePEc/WorkingPapers/GEE_PAPERS_41.pdf
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    References listed on IDEAS

    as
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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, revised Apr 2012.

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