A government's ability to forecast key economic fundamentals accurately can affect business confidence, consumer sentiment, and foreign direct investment, among others. A government forecast based on an econometric model is replicable, whereas one that is not fully based on an econometric model is non-replicable. Governments typically provide non-replicable forecasts (or expert forecasts) of economic fundamentals, such as the inflation rate and real GDP growth rate. In this paper, we develop a methodology for evaluating non-replicable forecasts. We argue that in order to do so, one needs to retrieve from the non-replicable forecast its replicable component, and that it is the difference in accuracy between these two that matters. An empirical example to forecast economic fundamentals for Taiwan shows the relevance of the proposed methodological approach. Our main finding is that the undocumented knowledge of the Taiwanese government reduces forecast errors substantially.

Additional Metadata
Keywords Generated regressors, Government forecasts, Initial forecasts, Non-replicable government forecasts, Replicable government forecasts, Revised forecasts
JEL Time-Series Models; Dynamic Quantile Regressions (jel C22), Forecasting and Other Model Applications (jel C53), Forecasting and Simulation (jel E17)
Persistent URL dx.doi.org/10.1016/j.ijforecast.2010.12.001, hdl.handle.net/1765/22784
Series Econometric Institute Reprint Series
Journal International Journal of Forecasting
Chang, C-L, Franses, Ph.H.B.F, & McAleer, M.J. (2011). How accurate are government forecasts of economic fundamentals? The case of Taiwan. International Journal of Forecasting, 27(4), 1066–1075. doi:10.1016/j.ijforecast.2010.12.001