Economic forecasting
Encyclopedia
Economic forecasting is the process of making predictions about the economy. Forecasts can be carried out at a high level of aggregation - for example for GDP
, inflation
, unemployment
or the fiscal deficit - or at a more disaggregated level, for specific sectors of the economy or even specific firms.
Many institutions engage in forecasting, including international organisations such as the IMF or the OECD, national governments and central banks, and private sector entities, be they think tanks, banks or others. Some forecasts are produced annually, but many are updated more frequently.
Consensus Economics Inc., among others, compiles the macroeconomic forecasts prepared by a variety of forecasters, and publishes them every month. The Economist magazine regularly provides such a snapshot as well, for a broad range of countries (a recent example is provided here).
The financial and economic crisis that erupted in 2007 - arguably the worst since the Great Depression of the 1930s
- was not foreseen by most of the forecasters, even if a few lone analysts had been crying wolf for some time (for example, Nouriel Roubini
and Robert Shiller
). The failure to forecast the "Great Recession" has caused a lot of soul searching in the profession. The Queen of England herself asked why had nobody noticed that the credit crunch was on its way, and a group of economists - experts from business, the City, its regulators, academia, and government - tried to explain in a letter.
Methods of forecasting include Econometric model
s, Economic base analysis
, Shift-share analysis
, Input-output model
and the Grinold and Kroner Model
.
See also Land use forecasting
, Reference class forecasting
, Transportation planning
, Calculating Demand Forecast Accuracy
and Consensus forecasts
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
, inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
or the fiscal deficit - or at a more disaggregated level, for specific sectors of the economy or even specific firms.
Many institutions engage in forecasting, including international organisations such as the IMF or the OECD, national governments and central banks, and private sector entities, be they think tanks, banks or others. Some forecasts are produced annually, but many are updated more frequently.
Consensus Economics Inc., among others, compiles the macroeconomic forecasts prepared by a variety of forecasters, and publishes them every month. The Economist magazine regularly provides such a snapshot as well, for a broad range of countries (a recent example is provided here).
The financial and economic crisis that erupted in 2007 - arguably the worst since the Great Depression of the 1930s
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
- was not foreseen by most of the forecasters, even if a few lone analysts had been crying wolf for some time (for example, Nouriel Roubini
Nouriel Roubini
Nouriel Roubini is an American economist. He claims to have predicted both the collapse of the United States housing market and the worldwide recession which started in 2008. He teaches at New York University's Stern School of Business and is the chairman of Roubini Global Economics, an economic...
and Robert Shiller
Robert Shiller
Robert James "Bob" Shiller is an American economist, academic, and best-selling author. He currently serves as the Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance, Yale School of Management...
). The failure to forecast the "Great Recession" has caused a lot of soul searching in the profession. The Queen of England herself asked why had nobody noticed that the credit crunch was on its way, and a group of economists - experts from business, the City, its regulators, academia, and government - tried to explain in a letter.
Methods of forecasting include Econometric model
Econometric model
Econometric models are statistical models used in econometrics. An econometric model specifies the statistical relationship that is believed to hold between the various economic quantities pertaining to a particular economic phenomenon under study...
s, Economic base analysis
Economic base analysis
Economic base analysis was developed by Robert Murray Haig in his work on the Regional Plan of New York in 1928. Briefly, activities in an area divide into two categories – basic and non-basic. Basic industries are those exporting from the region and bringing wealth from outside; non-basic ...
, Shift-share analysis
Shift-share analysis
Shift/share analysis is a widely used analytical technique sometimes used for retrospectively decomposing changes, usually in employment, in a set of urban areas or regions...
, Input-output model
Input-output model
In economics, an input-output model is a quantitative economic technique that represents the interdependencies between different branches of national economy or between branches of different, even competing economies. Wassily Leontief developed this type of analysis and took the Nobel Memorial...
and the Grinold and Kroner Model
Grinold and Kroner Model
The Grinold and Kroner Model is used to calculate expected returns for a stock, stock index or the market as whole. It is a part of a larger framework for making forecasts about market expectations.The model states that:...
.
See also Land use forecasting
Land use forecasting
Land-use forecasting undertakes to project the distribution and intensity of trip generating activities in the urban area. In practice, land-use models are demand-driven, using as inputs the aggregate information on growth produced by an aggregate economic forecasting activity...
, Reference class forecasting
Reference class forecasting
Reference class forecasting is the method of predicting the future, through looking at similar past situations and their outcomes.Reference class forcasting predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast. The theories...
, Transportation planning
Transportation planning
Transportation planning is a field involved with the evaluation, assessment, design and siting of transportation facilities .-Models and Sustainability :...
, Calculating Demand Forecast Accuracy
Calculating Demand Forecast Accuracy
Calculating demand forecast accuracy is the process of determining the accuracy of forecasts made regarding customer demand for a product.-Importance of forecasts:...
and Consensus forecasts
Consensus forecasts
In a number of sciences, ranging from econometrics to meteorology, consensus forecasts are predictions of the future that are created by combining together several separate forecasts which have often been created using different methodologies...