How Well Do Economists Forecast Recessions?
IMF Working Papers, March 5, 2018
Source details
- Canonical URL
- How Well Do Economists Forecast Recessions?
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Bibliographic details
- Authors: Zidong An, João Tovar Jalles, Prakash Loungani
- Published: March 5, 2018
- Series: IMF Working Papers
Overview
- Title: How Well Do Economists Forecast Recessions?
- Authors: Zidong An, João Tovar Jalles, Prakash Loungani
- Date: March 5, 2018
- Publication: IMF Working Papers
- Summary statement: The paper describes the evolution of forecasts in the run-up to recessions, covering GDP forecasts for 63 countries for the years 1992 to 2014, and finds systematic failures to capture the magnitude and timing of recessions and booms.
Main findings
- Data coverage:
- GDP forecasts cover 63 countries for the years 1992 to 2014.
- Forecast performance in recessions:
- Forecasters are generally aware that recession years will be different from other years, but 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.
- Public vs private forecasts:
- Forecasts of the private sector and the official sector are virtually identical; thus, both are equally good at missing recessions.
- Booms and behavioral interpretation:
- Strong booms are also missed.
- The results provide suggestive evidence for Nordhaus’ (1987) view that behavioral factors—the reluctance to absorb either good or bad news—play a role in the evolution of forecasts.
Interpretation and implications
- Forecast timing and magnitude:
- Forecasters adjust more during recessions, but adjustments are too slow and too small to reliably predict recession magnitude before the year is nearly complete.
- Cross-sector similarity:
- The similarity between private and official forecasts implies common limitations across forecasting communities, not unique to either sector.
- Behavioral drivers:
- Missed booms and recessions together point toward behavioral explanations (information rigidity or reluctance to absorb news) as important in understanding forecast dynamics.
Subject classification and keywords
- Subject: Economic theory, Production, Production growth, Rational expectations
- Keywords: bias, comparing recession, efficiency, forecast comparison, forecasted recession, Global, IMF World Economic Outlook, information rigidity, Production growth, Rational expectations, recession, recession episode, recession year, WP
Content in this bundle
- How Well Do Economists Forecast Recessions?, WP/18/39, March 2018