Macroeconomic forecasts are frequently produced, published, discussed and used. The formal evaluation of such forecasts has a long research history. Recently, a new angle to the evaluation of forecasts has been addressed, and in this review we analyse some recent developments from that perspective. The literature on forecast evaluation predominantly assumes that macroeconomic forecasts are generated from econometric models. In practice, however, most macroeconomic forecasts, such as those from the IMF, World Bank, OECD, Federal Reserve Board, Federal Open Market Committee (FOMC) and the ECB, are based on econometric model forecasts as well as on human intuition. This seemingly inevitable combination renders most of these forecasts biased and, as such, their evaluation becomes non-standard. In this review, we consider the evaluation of two forecasts in which: (i) the two forecasts are generated from two distinct econometric models; (ii) one forecast is generated from an econometric model and the other is obtained as a combination of a model, the other forecast, and intuition; and (iii) the two forecasts are generated from two distinct combinations of different models and intuition. It is shown that alternative tools are needed to compare and evaluate the forecasts in each of these three situations. These alternative techniques are illustrated by comparing the forecasts from the Federal Reserve Board and the FOMC on inflation, unemployment and real GDP growth

Additional Metadata
Keywords biased forecasts, econometric models, forecast comparison, forecast evaluation, forecast performance, human intuition, macroeconomic forecasts
JEL Time-Series Models; Dynamic Quantile Regressions (jel C22), Model Construction and Estimation (jel C51), Model Evaluation and Testing (jel C52), Forecasting and Other Model Applications (jel C53), Forecasting and Simulation (jel E27), Forecasting and Simulation (jel E37)
Publisher Erasmus School of Economics
Persistent URL hdl.handle.net/1765/18604
Series Econometric Institute Research Papers
Journal Report / Econometric Institute, Erasmus University Rotterdam
Citation
Franses, Ph.H.B.F, McAleer, M.J, & Legerstee, R. (2010). Evaluating Macroeconomic Forecast: A Review of Some Recent Developments (No. EI 2010-19). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–27). Erasmus School of Economics. Retrieved from http://hdl.handle.net/1765/18604