An Evaluation of the World Economic Outlook Forecasts
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An Evaluation of the World Economic Outlook Forecasts ALLAN TIMMERMANN This paper conducts a series of statistical tests to evaluate the quality of the World Economic Outlook (WEO) forecasts for a very large cross section of countries. It assesses whether forecasts were unbiased and informationally efficient, characterizes the process whereby WEO forecasts get revised as the predicted period draws closer, and compares the precision of the WEO forecasts to private sector forecasts known as ‘‘consensus forecasts’’ and published by Consensus Economics on a monthly basis. The results suggest that the performance of the WEO forecasts is similar to that of the consensus forecasts. [JEL E17, E37, F17, F47] IMF Staff Papers (2007) 54, 1–33. doi:10.1057/palgrave.imfsp.9450007
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he World Economic Outlook (WEO) is a significant source of forecasts of global economic activity and is a key vehicle in the International Monetary Fund’s multilateral surveillance activities. It is published twice a year, in April and September. Given the central role of the WEO forecasts, it is important that they are periodically evaluated to assess their usefulness and to look for ways to improve the forecasting process. This study is the fourth in a series of such evaluations (following Artis, 1988 and 1997; and Barrionuevo, 1993). There are some notable differences between the current
Allan Timmermann is a professor of Management and Economics at the University of California San Diego. The author is grateful to Tim Callen, Thomas Helbling, and David Robinson for discussions. The author also thanks Mandy Hemmati for very valuable help in providing the data used in this study.
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Allan Timmermann
study and the earlier ones: First, we analyze forecasts for 178 countries in seven economic regions (Africa, Central and Eastern Europe, the Commonwealth of Independent States (CIS) countries and Mongolia, Developing Asia, the Middle East, the Western Hemisphere, and the Advanced Economies) since 1990. Earlier evaluations had focused on forecasts for only the Group of Seven (G-7) countries and regional aggregates. Second, we include an extensive comparison between the accuracy of WEO forecasts and consensus forecasts. The latter is a widely used source that compiles the forecasts of economists working in the private sector. Through this comparison, we assess WEO forecasts not just against absolute benchmarks, but also against a relative benchmark of other forecasters. Third, we consider the revisions to the forecasts, both over time and within each forecast round. The latter is important because there is a long gestation lag in the preparation of the forecasts in each round, and it is important to know the gains—in terms of accuracy—of frequent forecast updates. Our analysis focuses on the current-year and next-year WEO forecasts of real gross domestic product (GDP) growth and inflation. In the case of real GDP growth, we find that the WEO forecasts display a tendency for systematic overprediction—that is, predicted growth, on average, tends t
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