The State of Macroeconomic Forecasting

Macroeconomic forecasts are used extensively in industry and government The historical accuracy of US and UK forecasts are examined in the light of different approaches to evaluating macro forecasts. Issues discussed include the comparative accuracy of macroeconometric models compared to their time series alternatives, whether the forecasting record has improved over time, the rationality of macroeconomic forecasts and how a forecasting service should be chosen. The role of judgement in producing the forecasts is also considered where the evidence unequivocally favors such interventions. Finally the use of macroeconomic forecasts and their effectiveness is discussed. The conclusion drawn is that researchers have paid too little attention to the issue of improving the forecasting accuracy record. Areas where improvements would be particularly valuable are highlighted.