Sunday, May 16, 2010

Are Some Forecasters Really Better Than Others? Oh my

The truth ain't pretty.

Are Some Forecasters Really Better Than Others?

Antonello D’Agostino, Kieran McQuinn, Karl Whelan, April 2010

"In any dataset with individual forecasts of economic variables, some forecasters will perform better than others. However, it is possible that these ex post differences reflect sampling variation and thus overstate the ex ante differences between forecasters. In this paper, we present a simple test of the null hypothesis that all forecasters in the US Survey of Professional Forecasters have equal ability. We construct a test statistic that reflects both the relative and absolute performance of the forecaster and use bootstrap techniques to compare the empirical results with the equivalents obtained under the null hypothesis of equal forecaster ability. Results suggests limited evidence for the idea that the best forecasters are actually innately better than others, though there is evidence that a relatively small group of forecasters perform very poorly."

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Anonymous said...

As good as the reasury unemployment forecasts?

The Weatherman said...

Interesting...but mine's a bit easier to read!

I've been tracking the cash rate forecasts of a number of bank economists for a good while, and have concluded that:

- forecasting interest rates isn't easy
- trusting the judgment of bank economists is (mostly) better than flipping a coin or throwing darts at a board
- some kind of averaging mechanism might have some merit.

For info, Westpac have just surrendered the lead after a long time in top spot. Latest results are here.

Peter Martin said...

Wow, Weatherman.

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