The accuracy of OECD forecasts of the international economy: balance of payments |
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Authors: | JCK Ash DJ Smyth SM Heravi |
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Institution: | Department of Economics, University of Reading, Reading, Berkshire RG6 6AA, UK;Department of Economics, Louisiana State University, College of Business Administration, Baton Rouge, LA 70803, USA;Cardiff Business School, University of Wales, Cardiff, CF1 3AT, UK |
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Abstract: | This paper examines the accuracy of forecasts of the international economy made by the OECD. Our large data set, comprising some 5500 pairs of forecasts and outcomes, includes one-, two-, and three-step ahead semi-annual forecasts of eight components of the balance of payments for the G7 economies over a 20-year period. There is considerable variation in the accuracy of these forecasts. Although they are generally superior to naive and time-series predictions, there are some marked exceptions particularly as the forecast horizon lengthens. Forecasting error is overwhelmingly non-systematic. However, our study reveals numerous instances of forecasts which could be improved by a simple linear correction, or by incorporating information contained in known, recent forecast errors. The OECD's forecasts of services and private transfers, and official transfers are cause for particular concern: the accuracy of these forecasts is low, often below that of corresponding time-series forecasts, and rationality tests indicate that they are most prone to inefficiency and inconsistency. |
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Keywords: | JEL classification: F17 |
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