The accuracy of OECD forecasts of the international economy: balance of payments

• Published in: Journal of international money and finance 1997-12, Vol.16 (6), p.969-987
• Main Authors: Ash, J.C.K., Smyth, D.J., Heravi, S.M.
• Format: Article
• Language: English
• Subjects: Accuracy; Balance of payments; Economic forecasts; Economic models; Errors; International finance; Manycountries; Studies
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/S0261-5606(97)00015-6

This paper examines the accuracy of forecasts of the international economy made by the OECD. Our large data set, comprising some 5500 pairs of forecasts and outcomes, includes one-, two-, and three-step ahead semi-annual forecasts of eight components of the balance of payments for the G7 economies over a 20-year period. There is considerable variation in the accuracy of these forecasts. Although they are generally superior to naive and time-series predictions, there are some marked exceptions particularly as the forecast horizon lengthens. Forecasting error is overwhelmingly non-systematic. However, our study reveals numerous instances of forecasts which could be improved by a simple linear correction, or by incorporating information contained in known, recent forecast errors. The OECD's forecasts of services and private transfers, and official transfers are cause for particular concern: the accuracy of these forecasts is low, often below that of corresponding time-series forecasts, and rationality tests indicate that they are most prone to inefficiency and inconsistency.