IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/0318.html
   My bibliography  Save this paper

Information, Measurement, And Prediction In Economics

Author

Listed:
  • Victor Zarnowitz

Abstract

This paper examines the flow of production and use of economic information and analyzes the effects of measurement errors, particularly as transmitted through expectations and forecasts. Economic data are subject to a variety of errors, and the uncertainty about economic measures tends to increase further with the amount and complexity of the processing per-formed on the underlying data as well as with the distance between the user and the processor. With some exceptions, economic time series lag significantly behind their reference periods and many undergo large revisions. The effective information lag includes not only the time required for incremental data to be produced and transmitted but also the time required for the signals to be extracted by the user. This lag is substantial for many important series. In general, there is no presumption that the measurement errors are random: Systematic errors are frequent and their sources and forms vary so much that they may be difficult to detect. In times of strong shocks and surprising developments (such as occurred earlier in this decade),measurement of short-term changes in the economy is particularly difficult and current signals are apt to be often misinterpreted. This can result in broadly diffused decision errors which in time are discovered, leading to sharp corrective reactions. Aggregative predictions from well known and influential sources show certain common patterns of error, which suggests that forecasters react similarly to the observed events and unanticipated shocks. Fore-casts of GNP and related variables are adversely affected by errors in both the preliminary data and the base level estimates. There is some support here for the hypothesis that information lags play a significant role ingenerating business cycles, but it is important to note that the errors involved in predicting the future are typically much larger than the errors involved in estimating the present or recent past.

Suggested Citation

  • Victor Zarnowitz, 1979. "Information, Measurement, And Prediction In Economics," NBER Working Papers 0318, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0318
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w0318.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Arrow, Kenneth J, 1974. "Limited Knowledge and Economic Analysis," American Economic Review, American Economic Association, vol. 64(1), pages 1-10, March.
    2. Stigler, George J., 2011. "Economics of Information," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    3. Gordon, Robert J., 1976. "Recent developments in the theory of inflation and unemployment," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 185-219, April.
    4. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    5. Victor Zarnowitz & Geoffrey H. Moore, 1977. "The Recession and Recovery of 1973-1976," NBER Chapters, in: Explorations in Economic Research, Volume 4, number 4, pages 1-87, National Bureau of Economic Research, Inc.
    6. Pesando, James E, 1975. "A Note on the Rationality of the Livingston Price Expectations," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 849-858, August.
    7. Nelson, Charles R & Schwert, G William, 1977. "Short-Term Interest Rates as Predictors of Inflation: On Testing the Hypothesis That the Real Rate of Interest is Constant," American Economic Review, American Economic Association, vol. 67(3), pages 478-486, June.
    8. Joines, Douglas, 1977. "Short-Term Interest Rates as Predictors of Inflation: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 476-477, June.
    9. Benjamin M. Friedman, 1977. "The Inefficiency of Short-Run Monetary Targets for Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(2), pages 293-346.
    10. Rosanne Cole, 1969. "Introduction to "Errors in Provisional Estimates of Gross National Product"," NBER Chapters, in: Errors in Provisional Estimates of Gross National Product, pages 3-6, National Bureau of Economic Research, Inc.
    11. Victor Zarnowitz, 1967. "An Appraisal of Short-Term Economic Forecasts," NBER Books, National Bureau of Economic Research, Inc, number zarn67-1, Juni.
    12. Hirshleifer, Jack, 1973. "Where Are We in the Theory of Information?," American Economic Review, American Economic Association, vol. 63(2), pages 31-39, May.
    13. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, Juni.
    14. Rosanne Cole, 1969. "Errors in Provisional Estimates of Gross National Product," NBER Books, National Bureau of Economic Research, Inc, number cole69-1, Juni.
    15. Phelps, Edmund S & Taylor, John B, 1977. "Stabilizing Powers of Monetary Policy under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 163-190, February.
    16. Lucas, Robert E, Jr, 1975. "An Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1113-1144, December.
    17. Hahn, F H, 1970. "Some Adjustment Problems," Econometrica, Econometric Society, vol. 38(1), pages 1-17, January.
    18. McNees, Stephen K, 1978. "The "Rationality" of Economic Forecasts," American Economic Review, American Economic Association, vol. 68(2), pages 301-305, May.
    19. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
    20. Leontief, Wassily, 1971. "Theoretical Assumptions and Nonobserved Facts," American Economic Review, American Economic Association, vol. 61(1), pages 1-7, March.
    21. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0318. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.