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Expectations and Forecasts from Business Outlook Surveys

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  • Victor Zarnowitz

Abstract

Each quarter since 1968 the National Bureau of Economic Research, in collaboration with the American Statistical Association, has been collecting a large amount of information on the record of forecasting in the U. S. economy. This paper is a progress report on a comprehensive study of the distribution of individual predictions from these surveys. It covers forecasts of quarterly developments in the year ahead for six variables representing inflation, real growth, unemployment, percentage changes in GNP and spending on consumer durables, and business inventory investment. The 79 respondents who participated in at least 12 of the 42 surveys covered constitute a broadly based and diversified group of experts and agents, mostly from the world of corporate business and finance -- executives, analysts, economic consultants, also some government and academic forecasters. The data are in certain respects uniquely rich. The first part of the paper reviews briefly the models of economic expectations and discusses the potential and problems of using survey data for testing these models. The second part offers a comparative analysis of the individual prediction series from the NBER-ASA as well as some earlier surveys. There are gains from combining predictions from different sources, e.g., the group mean forecasts are on the average over time more accurate than most of the corresponding sets of individual forecasts or expectations. But there is also a moderate degree of consistency in the relative 2erformances of individual fore- casters, some of whom score well above average with respect to several variables and predictive horizons. The third section presents the distributions of an array of absolute accuracy measures for the survey respondents, regressions of actual on predicted values, and associated tests of bias and autocorrelation of error. The marginal forecast errors tend to increase, and the correlations between predictions and realizations tend to decrease, as the target quarter recedes into the future. The tests of the joint null hypothesis that the regressions have zero intercepts and unitary slope coefficients are very unfavorable to expectations of inflation, but they show the forecasts of the other variables generally in much better light. Inflation has been largely underestimated, with the predicted rates lagging behind the actual rates. On the other hand, real growth has been on the average overestimated. The incidence of autocorrelation in the prediction errors was also much higher for inflation than for the other variables. A summary of findings is provided. The fifth and last section lists some additional questions raised by this study, to be dealt with in another paper.

Suggested Citation

  • Victor Zarnowitz, 1982. "Expectations and Forecasts from Business Outlook Surveys," NBER Working Papers 0845, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0845
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    References listed on IDEAS

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    1. Jacob A. Mincer & Victor Zarnowitz, 1969. "The Evaluation of Economic Forecasts," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 3-46, National Bureau of Economic Research, Inc.
    2. Jacob A. Mincer, 1969. "Models of Adaptive Forecasting," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 83-111, National Bureau of Economic Research, Inc.
    3. Zellner, Arnold & Palm, Franz, 1974. "Time series analysis and simultaneous equation econometric models," Journal of Econometrics, Elsevier, vol. 2(1), pages 17-54, May.
    4. M. Nerlove & S. Wage, 1964. "On the Optimality of Adaptive Forecasting," Management Science, INFORMS, vol. 10(2), pages 207-224, January.
    5. Christ, Carl F, 1975. "Judging the Performance of Econometric Models of the U.S. Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(1), pages 54-74, February.
    6. Victor Zarnowitz, 1972. "Forecasting Economic Conditions: The Record and the Prospect," NBER Chapters, in: Economic Research: Retrospect and Prospect, Volume 1, The Business Cycle Today, pages 183-239, National Bureau of Economic Research, Inc.
    7. Zarnowitz, Victor, 1982. "On Functions, Quality, and Timeliness of Economic Information," The Journal of Business, University of Chicago Press, vol. 55(1), pages 87-119, January.
    8. Theodore W. Schultz, 1962. "Reflections on Investment in Man," NBER Chapters, in: Investment in Human Beings, pages 1-8, National Bureau of Economic Research, Inc.
    9. William Poole, 1976. "Rational Expectations in the Macro Model," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 463-514.
    10. William Poole, 2001. "Expectations," Review, Federal Reserve Bank of St. Louis, vol. 83(Mar), pages 1-10.
    11. Figlewski, Stephen & Wachtel, Paul, 1981. "The Formation of Inflationary Expectations," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 1-10, February.
    12. Pearce, Douglas K, 1979. "Comparing Survey and Rational Measures of Expected Inflation: Forecast Performance and Interest Rate Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 447-456, November.
    13. Fair, Ray C, 1974. "An Evaluation of a Short-Run Forecasting Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(2), pages 285-303, June.
    14. Nelson, Charles R, 1975. "Rational Expectations and the Predictive Efficiency of Economic Models," The Journal of Business, University of Chicago Press, vol. 48(3), pages 331-343, July.
    15. Rosanne Cole, 1969. "Errors in Provisional Estimates of Gross National Product," NBER Books, National Bureau of Economic Research, Inc, number cole69-1, Juni.
    16. Feige, Edgar L & Pearce, Douglas K, 1976. "Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 499-522, June.
    17. Kane, Edward J & Malkiel, Burton G, 1976. "Autoregressive and Nonautoregressive Elements in Cross-Section Forecasts of Inflation," Econometrica, Econometric Society, vol. 44(1), pages 1-16, January.
    18. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    19. McNees, Stephen K, 1978. "The "Rationality" of Economic Forecasts," American Economic Review, American Economic Association, vol. 68(2), pages 301-305, May.
    20. John A. Carlson, 1977. "A Study of Price Forecasts," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 27-56, National Bureau of Economic Research, Inc.
    21. Victor Zarnowitz, 1980. "On Functions, Quality, and Timeliness of Economic Information," NBER Working Papers 0608, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Philip W. Lowe & Robert G. Trevor, 1987. "The Performance of Exchange Rate Forecasts," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 20(4), pages 31-44, December.
    2. Victor Zarnowitz, 1983. "Rational Expectations and Macroeconomic Forecasts," NBER Working Papers 1070, National Bureau of Economic Research, Inc.

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