Banking

How Accurate Are Government Forecasts Of Economic Fundamentals? The Case Of Taiwan

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Executive Summary

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, the authors develop a methodology to evaluate non-replicable forecasts. They 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.

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