Sources of error in forecasts and expectations: U.K. economic models, 1984-8

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 ac...

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Bibliographic Details
Published in:Journal of forecasting 1991-05, Vol.10 (3), p.231-253
Main Authors: Wallis, Kenneth F., Whitley, John D.
Format: Article
Language:English
Subjects:
Economic forecasts
Forecast adjustments
Forecast errors
Macroeconometric models
Rational expectations
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Summary: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.
ISSN:0277-6693
1099-131X
DOI:10.1002/for.3980100302