ChesusRice
Well-Known Member
So who told you the CBO sucked at forecasting?
http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11553/forecastingaccuracy.pdf
Historically, CBO’s two-year forecasts, as measured bythe root-mean-square error, have been about as accurateas those by the Administration and the
http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11553/forecastingaccuracy.pdf
Two-Year Forecasts
Historically, CBO’s two-year forecasts, as measured bythe root-mean-square error, have been about as accurateas those by the Administration and the
Blue Chip consensusforecasts. Those forecasts typically focus on variousmeasures of the economy’s performance, includinggrowth in real and nominal output, inflation in the CPI,fluctuations in nominal short- and long-term interestrates and in real short-term interest rates, the differencebetween the growth of the CPI and the GDP price index,and rates of growth of taxable income.
Growth in Real Output.
The accuracy of CBO’s forecastsclosely matched that of the Blue Chip consensus for the27 two-year forecasts made between 1982 and 2008 (seeTable 3 on page 14). CBO’s root-mean-square error was1.4 percentage points, as was that for the Blue Chip consensus.The two sets of errors were highly positively correlated;when CBO’s error was relatively large, the BlueChip’s error also was large and in the same direction. Inaddition, CBO was closer to the actual value in eight ofthe forecasts in which the forecasting errors differed bymore than 0.1 percentage point, and the Blue Chip wascloser in seven other forecasts. (CBO’s forecasts, whichwere published in the same month as the Blue Chip forecastswith which they were compared, were normallycompleted about six weeks earlier to provide time for thebudget projections to be prepared. Overall, the Administration’sforecasts were about as accurate as those of CBO,although the Administration’s forecasts were preparedeven earlier.)Forecasting errors tend to be larger at turning points inthe business cycle and when shifts occur in major economictrends. That tendency can be clearly seen in forecastsof growth in real output by comparing the errorsmade from 1979 to 1983—when the economy wentthrough a very turbulent recessionary period—with thesmaller errors recorded during the years from 1985 to1987, when the economy was in the middle of a cyclicexpansion. More recently, the recession of 2001 and theslow recovery in 2002 accounted for the overpredictionsmade by all three forecasters in 2000 and 2001. Similarly,the recession that began in late 2007 explains much ofthe overpredictions in forecasts published in 2007 and2008.All three forecasters underpredicted two-year growth inreal GDP in every year between 1992 and 1999, withvery large errors for the two-year forecasts made between1996 and 1999. About one-fourth of that apparent pessimismresulted from subsequent revisions to the NIPAs,which included important definitional changes. Thosedata revisions aside, the significant underpredictionsmade between 1996 and 1999 reflect the failure of analyststo foresee important economic developments—inparticular, the investment boom of the late 1990s, whichincreased the capital stock and thereby boosted labor productivity
and real output.
