Editing Economic forecasting (section)

==Issues in forecasting==
===Forecast accuracy===

There are many studies on the subject of forecast accuracy. Accuracy is one of the main, if not the main, criteria used to judge forecast quality. Some of the references below relate to academic studies of forecast accuracy. Forecasting performance appears to be time-dependent, where some exogenous events affect forecast quality. As expert forecasts are generally better than market-based forecasts, forecast performance depends on several factors: model, political economy ([[terrorism]]), financial stability etc.

In early 2014 the OECD carried out a self-analysis of its projections.<ref>[http://www.oecd.org/economy/oecd-forecasts-during-and-after-the-financial-crisis-a-post-mortem.htm OECD forecasts during and after the financial crisis: a post mortem]</ref> "The OECD also found that it was too optimistic for countries that were most open to trade and foreign finance, that had the most tightly regulated markets and weak banking systems" according to the Financial Times.<ref>{{Cite web |last=Giles |first=Chris |date=2014-02-11 |title=OECD admits to forecasting errors during eurozone crisis |url=https://www.ft.com/content/a4b1e3aa-9320-11e3-8ea7-00144feab7de |url-access=subscription |access-date=2023-02-12 |website=[[Financial Times]]}}</ref>

In 2012 Consensus Economics launched its Forecast Accuracy Award, and each year publishes a list of winners who have most accurately predicted the final outcome of GDP and CPI for the prior year for over 40 countries. [https://www.consensuseconomics.com/cf-2020-forecast-accuracy-award-winners/ "Consensus Economics Forecast Accuracy Award"]

In recent years, research has demonstrated that behavioral biases play a significant role in affecting the accuracy of forecasts. The education and working experience of forecasters influence the accuracy and boldness of their predictions.<ref>{{cite journal |last1=Benchimol |first1=Jonathan |last2=El-Shagi |first2=Makram |last3=Saadon |first3=Yossi |year=2022 |title=Do Expert experience and characteristics affect inflation forecasts? |journal=Journal of Economic Behavior & Organization |publisher=Elsevier |volume=201 |issue=C |pages=205–226 |issn=0167-2681 |doi=10.1016/j.jebo.2022.06.025 |s2cid=229274267 }}</ref> Forecasting accuracy is also impacted by the forecaster's experience with high inflation rates.<ref>{{cite journal |last1=Malmendier |first1=Ulrike |last2=Nagel |first2=Stefan |year=2016 |title=Learning from Inflation Experiences |journal=Quarterly Journal of Economics |publisher=Oxford University Press |volume=131 |issue=1 |pages=53–87 |doi=10.1093/qje/qjv037 |doi-access=free }}</ref> Additionally, political events such as terrorism have been shown to influence the accuracy of both expert- and market-based forecasts of inflation and exchange rates.<ref>{{cite journal |last1=Benchimol |first1=Jonathan |last2=El-Shagi |first2=Makram |year=2020 |title=Forecast performance in times of terrorism |journal=Economic Modelling |publisher=Elsevier |volume=91 |issue=C |pages=386–402 |issn=0264-9993 |doi=10.1016/j.econmod.2020.05.018 }}</ref> This highlights the range of external factors and biases that should be considered when evaluating the accuracy of forecasts and making informed decisions.

===Forecasts and the Great Recession===
The financial and economic [[Great Recession|crisis]] that erupted in 2007—arguably the worst since the [[Great Depression|Great Depression of the 1930s]]—was not foreseen by most forecasters, though a number of analysts had been predicting it for some time (for example, [[Stephen S. Roach|Stephen Roach]], [[Meredith Whitney]], [[Gary Shilling]], [[Peter Schiff]], [[Marc Faber]], [[Nouriel Roubini]], [[Brooksley Born]], and [[Robert Shiller]]).<ref>{{citation|url=https://www.pbs.org/wgbh/pages/frontline/warning/interviews/levitt.html#2#ixzz1Ydw4pnGS |title=The Warning: Interviews- Arthur Levitt|publisher=[[Public Broadcasting Service]]|series=[[Frontline (U.S. TV series)|Frontlines]]|type=Broadcast documentary transcript|editor=Michael Kirk|editor-link=Michael Kirk|last=Levitt|first=Arthur|date=2009-10-20}}</ref> The failure of the majority of them to forecast the "[[Great Recession]]" caused soul searching in the profession. The UK's Queen Elizabeth herself asked why had “nobody” noticed that the credit crunch was on its way, and a group of economists—experts from business, the City, its regulators, academia, and government—tried to explain in a letter.<ref>[http://www.britac.ac.uk/events/archive/forum-economy.cfm British Academy-The Global Financial Crisis Why Didn't Anybody Notice?-Retrieved July 27, 2015] {{webarchive|url=https://web.archive.org/web/20150707135349/http://www.britac.ac.uk/events/archive/forum-economy.cfm |date=July 7, 2015 }}</ref>

It was not just forecasting the Great Recession, but also forecasting its impact where it was clear that economists struggled. 

For example, in Singapore Citi argued the country would experience "the most severe recession in Singapore’s history". The economy grew in 2009 by 3.1% and in 2010, the nation saw a 15.2% growth rate.<ref name=":62">{{Cite journal|last1=Chen|first1=Xiaoping|last2=Shao|first2=Yuchen|date=2017-09-11|title=Trade policies for a small open economy: The case of Singapore|journal=The World Economy|doi=10.1111/twec.12555|s2cid=158182047 |issn=0378-5920}}</ref><ref name=":0">{{Cite news|last=Subler|first=Jason|date=2009-01-02|title=Factories slash output, jobs around world|language=en|work=Reuters|url=https://www.reuters.com/article/us-financial-idUSTRE4B70ME20090102|access-date=2020-09-20}}</ref> Similarly, [[Nouriel Roubini]] predicted in January 2009 that oil prices would stay below $40 for all of 2009. By the end of 2009, however, oil prices were at $80.<ref name=listen/><ref>Eric Tyson (2018). [https://books.google.com/books?id=Uch1DwAAQBAJ&dq=%22nouriel+roubini%22+%22wrong%22&pg=PT212 ''Personal Finance For Dummies'']</ref>  In March 2009, he predicted the [[S&P 500]] would fall below 600 that year, and possibly plummet to 200.<ref name=listen>Joe Keohane (January 9, 2011). [http://archive.boston.com/bostonglobe/ideas/articles/2011/01/09/that_guy_who_called_the_big_one_dont_listen_to_him/?page=full "That guy who called the big one? Don’t listen to him."] ''[[The Boston Globe]]''.</ref><ref>[[Maneet Ahuja]] (2014). [https://books.google.com/books?id=9fUwBgAAQBAJ&dq=%22nouriel+roubini%22+%22wrong%22&pg=PA164 ''The Alpha Masters; Unlocking the Genius of the World's Top Hedge Funds'']</ref> It closed at over 1,115, up 24%, the largest single year gain since 2003.<ref>[https://www.latimes.com/archives/blogs/money-company/story/2009-04-08/roubini-to-cramer-just-shut-up "Roubini to Cramer: ‘Just shut up’"], ''[[The Los Angeles Times]]'', April 8, 2009.</ref> In 2009 he also predicted that the US government would take over and nationalize a number of large banks; it did not happen.<ref>Joseph Lazzaro (March 26, 2009). [https://www.aol.com/2009/03/26/dr-doom-predicts-some-big-banks-will-be-nationalized/ "'Dr. Doom' predicts some big banks will be nationalized,"] [[AOL.com]].</ref><ref name=II>Alice Guy (January 16, 2023). [https://www.ii.co.uk/analysis-commentary/seven-times-experts-got-it-very-wrong-economy-ii526599 "Seven times the experts got it very wrong on the economy,"] ''[[Interactive Investor]]''.</ref> In October 2009 he predicted that gold "can go above $1,000, but it can’t move up 20-30%”; he was wrong, as the price of gold rose over the next 18 months, breaking through the $1,000 barrier to over $1,400.<ref name=II/>  Although in May 2010 he predicted a 20% decline in the stock market, the S&P actually rose about 20% over the course of the next year (even excluding returns from dividends).<ref>Larry Swedroe (May 20, 2011).  [https://www.cbsnews.com/news/nouriel-roubini-misses-another-prediction/ "Nouriel Roubini Misses Another Prediction,"] ''[[CBS News]]''.</ref>