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Evaluating the forecast quality of GDP components: An application to G7

  • Paulo Júlio

    ()

    (Office for Strategy and Studies, Portuguese Ministry of Economy and Employment)

  • Pedro M. Esperança

    ()

We evaluate the quality of OECD's and IMF's forecasts for real GDP growth and for GDP expenditure components. We use a scaled statistic to compare the prediction models' performance across GDP components with different volatilities and decompose the GDP forecast error into the corresponding component contributions. Moreover, we use two recently proposed statistics - Mean of Total Weighted Absolute Error and Mean of Total Weighted Squared Error - to evaluate the overall accuracy of component predictions. We conclude that overpredictions in investment and net exports explain GDP overpredictions at 1-year horizons. Accurate GDP forecasts for same-year predictions are mostly explained by canceling out effects in component prediction errors - mainly in exports and imports - rather than by accurate component predictions. We also show that forecasts are in general inefficient for both GDP and its components and that the 2008 crisis had a large negative effect on the quality of forecasts being issued, but not on the predictive quality of forecast models.

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File URL: http://www.gee.min-economia.pt/RePEc/WorkingPapers/GEE_PAPERS_47.pdf
File Function: First version, 2012
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Paper provided by Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação in its series GEE Papers with number 0047.

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Length: 32 pages
Date of creation: Apr 2012
Date of revision: Apr 2012
Handle: RePEc:mde:wpaper:0047
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  1. Victor Zarnowitz & Phillip Braun, 1992. "Twenty-two Years of the NBER-ASA Quarterly Economic Outlook Surveys: Aspects and Comparisons of Forecasting Performance," NBER Working Papers 3965, National Bureau of Economic Research, Inc.
  2. Frederick L. Joutz, 1988. "Informational efficiency tests of quarterly macroeconometric GNP forecasts from 1976 to 1985," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 311-330, December.
  3. Loungani, Prakash, 2001. "How accurate are private sector forecasts? Cross-country evidence from consensus forecasts of output growth," International Journal of Forecasting, Elsevier, vol. 17(3), pages 419-432.
  4. Joutz, Fred & Stekler, H. O., 2000. "An evaluation of the predictions of the Federal Reserve," International Journal of Forecasting, Elsevier, vol. 16(1), pages 17-38.
  5. Rob J. Hyndman & Anne B. Koehler, 2005. "Another Look at Measures of Forecast Accuracy," Monash Econometrics and Business Statistics Working Papers 13/05, Monash University, Department of Econometrics and Business Statistics.
  6. 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.
  7. 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 e da Inovação, revised Oct 2011.
  8. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-35, September.
  9. Oller, Lars-Erik & Barot, Bharat, 2000. "The accuracy of European growth and inflation forecasts," International Journal of Forecasting, Elsevier, vol. 16(3), pages 293-315.
  10. Vuchelen, Jef & Gutierrez, Maria-Isabel, 2005. "A direct test of the information content of the OECD growth forecasts," International Journal of Forecasting, Elsevier, vol. 21(1), pages 103-117.
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