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How Effective Is Economic Forecasting

How Effective Is Economic Forecasting

Submitted by • March 17, 2020 kredx.com

Economic forecasting is a very important way of analyzing the future state of the economy. This article takes a look at the deficiencies of the system.

It has been suggested that economic forecasting boils down to intelligent guesswork. There are three basic models at work for predicting the direction the world economy will take. One is completely theory-based and offers economic forecasts on the basis of already established macroeconomic principles. The second is purely data-oriented as it hopes to establish complicated relationships between different economic variables with the aim of creating meaningful predictive data. The third is a more hybrid approach that chooses to combine the first and the second model, in order to create a more pragmatic path towards effective economic forecasting. Here are the difficulties these models face in realistic predictions:

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