An evaluation of quarterly national institute forecasts

This paper examines the quarterly forecasts by the U.K. National Institute of Economic and Social Research of the rate of inflation and the change in real gross domestic product and its components for horizons of one to four quarters ahead in the U.K. The forecasts are tested to see if they satisfy three implications of the rational expectations hypothesis: unbiasedness, efficiency and consistency. Explicit consideration is given to the information set available when the forecasts are made. In general, the data are consistent with the rational expectations hypothesis and our results provide encouragement for the view that aggregate expectations will meet the ex post requirements of rationality.     

Sources of error in forecasts and expectations: U.K. economic models, 1984–8

This paper presents a comparative analysis of the sources of error in forecasts for the UK economy published over a recent four-year period by four independent groups. This analysis rests on the archiving at the ESRC Macroeconomic Modelling Bureau of the original forecasts together with all their accompanying assumptions and adjustments. A method of decomposing observed forecast errors so as to distinguish the contributions of forecaster and model is set out; the impact of future expectations treated in a ‘model-consistent’ or ‘rational’ manner is specifically considered. The results show that the forecaster's adjustments make a substantial contribution to forecast performance, a good part of which comes from adjustments that bring the model on track at the start of the forecast period. The published ex-ante forecasts are usually superior to pure model-based ex-post forecasts, whose performance indicates some misspecification of the underlying models.