Template-type: ReDIF-Paper 1.0
Author-Name: Philip Hans Franses
Author-Workplace-Name: Econometric Institute Erasmus School of Economics, Erasmus University Rotterdam
Author-Name: Michael McAleer
Author-Person: pmc90 
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute,
	The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of
	Economic Research, Kyoto University. 
Author-Name: Rianne Legerstee
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and
	Tinbergen Institute The Netherlands
Title: Evaluating Macroeconomic Forecasts: A Concise Review of Some Recent Developments
Abstract: Macroeconomic forecasts are frequently produced, widely published, intensively discussed and 
	comprehensively used. The formal evaluation of such forecasts has a long research history. Recently, a 
	new angle to the evaluation of forecasts has been addressed, and in this review we analyse some recent 
	developments from that perspective. The literature on forecast evaluation predominantly assumes that 
	macroeconomic forecasts are generated from econometric models. In practice, however, most macroeconomic 
	forecasts, such as those from the IMF, World Bank, OECD, Federal Reserve Board, Federal Open Market 
	Committee (FOMC) and the ECB, are typically based on econometric model forecasts jointly with human 
	intuition. This seemingly inevitable combination renders most of these forecasts biased and, as such, 
	their evaluation becomes non-standard. In this review, we consider the evaluation of two forecasts in 
	which: (i) the two forecasts are generated from two distinct econometric models; (ii) one forecast is 
	generated from an econometric model and the other is obtained as a combination of a model and intuition; 
	and (iii) the two forecasts are generated from two distinct (but unknown) combinations of different models 
	and intuition. It is shown that alternative tools are needed to compare and evaluate the forecasts in each 
	of these three situations. These alternative techniques are illustrated by comparing the forecasts from 
	the (econometric) Staff of the Federal Reserve Board and the FOMC on inflation, unemployment and real GDP 
	growth. It is shown that the FOMC does not forecast significantly better than the Staff, and that the 
	intuition of the FOMC does not add significantly in forecasting the actual values of the economic 
	fundamentals. This would seem to belie the purported expertise of the FOMC.
Classification-JEL: C22, C51, C52, C53, E27, E37.
Keywords: Macroeconomic forecasts, econometric models, human intuition, biased forecasts, forecast performance, 
	forecast evaluation, forecast comparison.
Note: The authors wish to thank Les Oxley, Chia-Lin Chang, an Associate Editor and two anonymous referees for detailed and helpful comments and suggestions. The second author wishes to acknowledge the financial support of the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science.
Length: 28 pages 
Creation-Date: 2012-06 
Number: 2012-14 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1214.txt
File-URL: https://eprints.ucm.es/id/eprint/15603/1/1214.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1214