Are Forecast Updates Progressive?
Macro-economic forecasts typically involve both a model component, which is replicable, as well as intuition, which is non-replicable. Intuition is expert knowledge possessed by a forecaster. If forecast updates are progressive, forecast updates should become more accurate, on average, as the actual value is approached. Otherwise, forecast updates would be neutral. The paper proposes a methodology to test whether forecast updates are progressive and whether econometric models are useful in updating forecasts. The data set for the empirical analysis are for Taiwan, where we have three decades of quarterly data available of forecasts and updates of the inflation rate and real GDP growth rate. The actual series for both the inflation rate and the real GDP growth rate are always released by the government one quarter after the release of the revised forecast, and the actual values are not revised after they have been released. Our empirical results suggest that the forecast updates for Taiwan are progressive, and can be explained predominantly by intuition. Additionally, the one-, two- and three-quarter forecast errors are predictable using publicly available information for both the inflation rate and real GDP growth rate, which suggests that the forecasts can be improved.
|Keywords||actual value, econometric models, forecast errors, initial forecast, intuition, macro-economic forecasts, primary forecast, progressive forecast updates, revised forecast|
|JEL||Time-Series Models; Dynamic Quantile Regressions (jel C22), Forecasting and Other Model Applications (jel C53), Forecasting and Simulation (jel E27), Forecasting and Simulation (jel E37)|
|Publisher||Erasmus School of Economics|
|Series||Econometric Institute Research Papers|
|Journal||Report / Econometric Institute, Erasmus University Rotterdam|
Chang, C-L, Franses, Ph.H.B.F, & McAleer, M.J. (2010). Are Forecast Updates Progressive? (No. EI 2010-24). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–23). Erasmus School of Economics. Retrieved from http://hdl.handle.net/1765/19358