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Modeling Judgment in Macroeconomic Forecasts

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  • Philip Hans Franses

    (Erasmus School of Economics)

Abstract

Many macroeconomic forecasts are the outcome of a judgmental adjustment to a forecast from an econometric model. The size, direction, and motivation of the adjustment are often unknown as usually only the final forecast is available. This is problematic in case an analyst wishes to learn from forecast errors, which could lead to improving the model, the judgment or both. This paper therefore proposes a formal method to include judgment, which makes the combined forecast reproducible. As an illustration, a forecast from a benchmark simple time series model is only modified when the value of a factor, estimated from a multitude of variables, exceeds a user-specified threshold. Simulations and empirical results for forecasting annual real GDP growth in 52 African countries provide an illustration.

Suggested Citation

  • Philip Hans Franses, 2021. "Modeling Judgment in Macroeconomic Forecasts," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(1), pages 401-417, December.
    • Handle: RePEc:spr:jqecon:v:19:y:2021:i:1:d:10.1007_s40953-021-00277-5
    DOI: 10.1007/s40953-021-00277-5
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    1. Yong Bao & Aman Ullah, 2021. "The Special Issue in Honor of Anirudh Lal Nagar: An Introduction," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(1), pages 1-8, December.

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    More about this item

    Keywords

    Macroeconomic forecasting; Judgment; Dynamic factors; GDP growth in Africa;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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