Are Forecast Updates Progressive?



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Chang, Chia-Lin and Franses, Philip Hans and McAleer, Michael (2011) Are Forecast Updates Progressive? [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 03, 2011, ] (Unpublished)

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Many macro-economic forecasts and forecast updates, such as those from the IMF and OECD, typically involve both a model component, which is replicable, as well as intuition (namely, expert knowledge possessed by a forecaster), which is non-replicable. . Learning from previous mistakes can affect both the replicable component of a model as well as intuition. If learning, and hence forecast updates, are progressive, forecast updates should generally become more accurate as the actual value is approached. Otherwise, learning and forecast updates would be neutral. The paper proposes a methodology to test whether macro-economic forecast updates are progressive, where the interaction between model and intuition is explicitly taken into account. The data set for the empirical analysis is for Taiwan, where we have three decades of quarterly data available of forecasts and their updates of two economic fundamentals, namely the inflation rate and real GDP growth rate. The empirical results suggest that the forecast updates for Taiwan are progressive, and that progress can be explained predominantly by improved intuition.

Item Type:Working Paper or Technical Report
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JEL Classifications: C53, C22, E27, E37.

Uncontrolled Keywords:Macro-economic forecasts, Econometric models, Intuition, learning, Progressive forecast updates, Forecast errors
Subjects:Social sciences > Economics > Econometrics
Social sciences > Economics > Macroeconomics
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
ID Code:12434
Deposited On:16 Mar 2011 08:20
Last Modified:15 Feb 2022 13:25

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