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How well do economists forecast recessions?
Author(s) -
An Zidong,
Jalles João Tovar,
Loungani Prakash
Publication year - 2018
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/infi.12130
Subject(s) - recession , economics , boom , margin (machine learning) , pace , consensus forecast , global recession , business cycle , monetary economics , keynesian economics , macroeconomics , econometrics , geography , environmental science , computer science , geodesy , machine learning , environmental engineering
We describe the evolution of forecasts in the run‐up to recessions. The GDP forecasts cover 63 countries for the years 1992–2014. The main finding is that, while forecasters are generally aware that recession years will be different from other years, they miss the magnitude of the recession by a wide margin until the year is almost over. Forecasts during non‐recession years are revised slowly; in recession years, the pace of revision picks up but not sufficiently to avoid large forecast errors. Our second finding is that forecasts of the private sector and the official sector are virtually identical; thus, both are equally good at missing recessions. Strong booms are also missed, providing suggestive evidence for Nordhaus' view that behavioural factors—the reluctance to absorb either good or bad news—play a role in the evolution of forecasts.