Economic Forecasting: The State of the Art

Economic Forecasting: The State of the Art

Economic Forecasting: The State of the Art

Economic Forecasting: The State of the Art


An overview of the macroeconomic forecasting industry in the United States that explains and evaluates the forecasting techniques used to make predictions about various aspects of the national economy.


This book is written for those who study, use, and perhaps occasionally make, economic forecasts. It addresses the question of how forecasting is done. If you ever have been handed an arima forecast or some exponentially smoothed data and wondered exactly what was done to obtain those numbers, this book will tell you.

This is a book on economic forecasting techniques. the focus is on macroeconomic forecasts, including forecasts of economic growth, interest rates, and employment for the entire economy. This distinguishes the book from others that concentrate on business forecasting, with an emphasis on predicting sales, prices, and inventories for a single firm or market. There is, however, some overlap between this book on economic forecasting and those concerned with business forecasting. Most important, some of the techniques explained here will work well in the setting of a single firm or market.

A perfectly detailed understanding of economic forecasting techniques requires a substantial background in mathematics and statistics. If you have that background, the notes at the end of each chapter and the bibliography at the end of the book will refer you to the major sources for each topic. If you do not have that background or do not wish to become involved with the fine details of each procedure, then this text will provide an intuitive understanding. in any case, the exposition here is intended to be as detailed as possible while remaining accessible to the typical businessperson.

Another objective of this book is to answer the question Which forecasting technique works best? For GDP? For interest rates? For the long, short, or intermediate term? These questions are answered along the way, and formally in the last chapter.

The first chapter gives an overview of the economic forecasting industry in the United States. the second chapter discusses the business cycle--the nonperiodic but recurrent ups and downs in economic activity that make forecasting such a difficult endeavor. Theories about long waves in economic activity are taken up in the third chapter. Chapters four through seven present the forecasting techniques.

Throughout the presentation, every attempt is made to be plain-

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