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Sources of error in forecasts and expectations: U.K. economic models, 1984–8
Author(s) -
Wallis Kenneth F.,
Whitley John D.
Publication year - 1991
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.3980100302
Subject(s) - ex ante , econometrics , consensus forecast , forecast error , rational expectations , economics , set (abstract data type) , forecast period , computer science , macroeconomics , cash , cash flow statement , programming language
This paper presents a comparative analysis of the sources of error in forecasts for the UK economy published over a recent four‐year period by four independent groups. This analysis rests on the archiving at the ESRC Macroeconomic Modelling Bureau of the original forecasts together with all their accompanying assumptions and adjustments. A method of decomposing observed forecast errors so as to distinguish the contributions of forecaster and model is set out; the impact of future expectations treated in a ‘model‐consistent’ or ‘rational’ manner is specifically considered. The results show that the forecaster's adjustments make a substantial contribution to forecast performance, a good part of which comes from adjustments that bring the model on track at the start of the forecast period. The published ex‐ante forecasts are usually superior to pure model‐based ex‐post forecasts, whose performance indicates some misspecification of the underlying models.