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Sources of turning point forecast errors

Author

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  • M. H. Schnader
  • H. O. Stekler

Abstract

Little attention has been devoted to explaining the failure to predict the turning points at the beginning of recessions. This note builds on a model that showed that a turning point might not be predicted if forecasters' prior probabilities of a recession were low. Costs associated with various types of errors might also produce this result. A model is developed and then applied to a particular US business cycle indicator. The results show that costs as well as priors may contribute to this type of forecasting error.

Suggested Citation

  • M. H. Schnader & H. O. Stekler, 1998. "Sources of turning point forecast errors," Applied Economics Letters, Taylor & Francis Journals, vol. 5(8), pages 519-521.
    • Handle: RePEc:taf:apeclt:v:5:y:1998:i:8:p:519-521
    DOI: 10.1080/135048598354465
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    References listed on IDEAS

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    1. Rendigs Fels & C. Elton Hinshaw, 1968. "Forecasting and Recognizing Business Cycle Turning Points," NBER Books, National Bureau of Economic Research, Inc, number fels68-1.
    2. Victor Zarnowitz, 1991. "Has Macro-Forecasting Failed?," NBER Working Papers 3867, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Fildes, Robert & Stekler, Herman, 2002. "The state of macroeconomic forecasting," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 435-468, December.
    2. Goodwin, Paul & Önkal, Dilek & Stekler, Herman O., 2018. "What if you are not Bayesian? The consequences for decisions involving risk," European Journal of Operational Research, Elsevier, vol. 266(1), pages 238-246.
    3. Goodwin, Paul, 2015. "When simple alternatives to Bayes formula work well: Reducing the cognitive load when updating probability forecasts," Journal of Business Research, Elsevier, vol. 68(8), pages 1686-1691.
    4. repec:lan:wpaper:470 is not listed on IDEAS
    5. repec:lan:wpaper:425 is not listed on IDEAS
    6. repec:lan:wpaper:539557 is not listed on IDEAS
    7. repec:lan:wpaper:413 is not listed on IDEAS
    8. Sergey Smirnov, 2011. "Those Unpredictable Recessions," HSE Working papers WP BRP 02/EC/2011, National Research University Higher School of Economics.

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