Herman O Stekler

George Washington University | GW · Department of Economics

In this paper we present a multivariate analysis of the Federal Reserve’s forecasts. First, we evaluate the Fed’s forecasts of the ten major expenditure categories of real GDP. Second, we present a new methodology for evaluating multivariate forecasts. Finally, we use the same methodology to determine whether the Fed’s forecasts of GDP growth, infl...

In this paper we present an evaluation of forecasts of a vector of variables of the German economy made by different institutions. Our method permits one to evaluate the forecasts for each year and then if one is interested to combine the years. We use our method to determine an overall winner for a forecasting competition across twenty-five differ...

In this paper we examine the quality of the initial estimates of headline GDP and 10 major components of both real and nominal U.S. GDP. We ask a number of questions about various characteristics of the differences between the initial estimates available one month after the end of the quarter to the estimates available three months after the end of...

It is generally believed that the recession of 2007–09 was not foreseen by business economists. Is this perceived view accurate? We explore this issue by examining business economists’ published statements about economic conditions. We compare these qualitative forecasts with the Beige Book. We conclude that both sets of data are similar and that b...

This paper uses the difference in seeding ranks to predict the outcome of March Madness games. It updates the Boulier-Stekler method by predicting the outcomes by rounds. We also use the consensus rankings obtained from individuals, systems and poll. We conclude that the consensus rankings were slightly better predictors in the early rounds but had...

This paper presents a recently developed approach for evaluating economic forecasts. Previously, univariate methods were used to evaluate the forecasts of individual variables. However, many macroeconomic variables are forecast at the same time to describe the state of the economy. It is, therefore, appropriate to use a multivariate methodology in...

No abstract available.

Over the past 50 or so years, I have been concerned with the quality of economic forecasts and have written both about the procedures for evaluating these predictions and the results that were obtained from these evaluations. In this paper I provide some perspectives on the issues involved in judging the quality of these forecasts. These include th...

We document information rigidity in forecasts for real GDP growth in 46 countries over the past two decades. We investigate: (i) if rigidities are lower around turning points in the economy, such as in times of recessions and crises; (ii) if rigidities differ across countries, particularly between advanced countries and emerging markets; and (iii)...

In this paper we jointly evaluate the Federal Reserve staff forecasts of U.S. real output growth and the inflation rate, assuming that the forecasts are to be used as inputs for the Taylor rule. Our simple methodology generates “policy forecast errors” which have a direct interpretation for the impact of forecast errors on the target interest rate...

In this paper we examine the quality of the initial estimates of the components of both real and nominal U.S. GDP. We introduce a number of new statistics for measuring the magnitude of changes in the components from the initial estimates available one month after the end of the quarter to the estimates available 3 months after the end of the quart...

It is generally believed that the recession of 2007-2009 was not foreseen by business economists. Is this perceived view accurate? We explore this issue by examining business economists’ published statements about economic conditions. We compare these qualitative forecasts with the Beige Book. We conclude that both sets of data are similar and that...

A great amount of effort is spent in forecasting the outcome of sporting events, but few papers have focused exclusively on the characteristics of sports forecasts. Rather, many papers have been written about the efficiency of sports betting markets. As it turns out, it is possible to derive considerable information about the forecasts and the fore...

Many studies have undertaken separate analyses of the Fed's forecasts of real Gross Domestic Product (GDP) growth and inflation. This article presents a method for jointly evaluating the direction of change predictions of these variables. We conclude that some of the inflation forecasts, examined separately, were not valuable. However, the joint pa...

Forecasts for the current year that are made sometime during the current year are not true annual forecasts because they include already known information for the early part of the year. The current methodology that evaluates these 'forecasts' does not take into account the known information. This article presents a methodology for calculating an i...

Recent research has documented that the Federal Reserve produces systematic errors in forecasting inflation, real GDP growth, and the unemployment rate, even though these forecasts are unbiased. We show that these systematic errors reveal that the Fed is “surprised ” by real and inflationary cycles. Using a modified Mincer-Zarnowitz regression, we...

The major focus of this paper is to determine whether the accur acy of German macroeconomic forecasts has improved over time. We examine 1-year-ahead forecasts of real GDP and inflation for 1967 to 2001 made by three major Germ an forecasting groups and the OECD. We examine the accuracy of the forecasts over the entire period and in three sub-perio...

The article "Forecasting Economic and Financial Variables with Global VARs" is on the frontier of current model building based on vector autoregressions. The constructed model links country/region specific models into a unified framework. This global VAR (GVAR) consists of 26 regions and estimates equations for 134 variables. The models for most re...

Previous research on defining and measuring consensus (agreement) among forecasters has been concerned with the evaluation of forecasts of continuous variables. This previous work is not relevant when the forecasts involve binary decisions: up-down or win-lose. In this paper we use Cohen's kappa coefficient, a measure of inter-rater agreement invol...

This paper evaluates the potential impact of forecast errors on policy. We jointly evaluate the Federal Reserve staff forecasts of U.S. real output growth and the inflation rate in the context of the Taylor (1993) monetary policy rule. Our simple methodology generates “policy forecast errors” which have a direct interpretation for the impact of for...

Fildes and Stekler’s (2002) survey of the state of knowledge about the quality of economic forecasts focused primarily on US and UK data. This paper will draw on some of their findings but it will not examine any additional US forecasts. The purpose is to determine whether their results are robust by examining the predictions of other countries. Th...

The Census Bureau makes periodic long-term forecasts of both the total US population and the population of each of the states. Previous evaluations of these forecasts were based on the magnitude of the discrepancies between the projected and actual population figures. However, it might be inappropriate to evaluate these long-term projections with t...

This paper reconciles contradictory findings obtained from forecast evaluations: the existence of systematic errors and the failure to reject rationality in the presence of such errors. Systematic errors in one economic state may offset the opposite types of errors in the other state such that the null of rationality is not rejected. A modified tes...

INTRODUCTIONRATIONALITY: WEAK AND STRONG (EFFICIENCY)TYPES OF FORECASTSSTATISTICAL TESTSEMPIRICAL RESULTS - WEAK FORM INFORMATIONAL EFFICIENCYU.K. EMPIRICAL RESULTSWHY ARE SOME FORECASTS NOT RATIONAL?RELATED TOPICS AND UNRESOLVED ISSUESCONCLUSIONS

This paper introduces the presentations in the Special Section on the “The future of macroeconomic forecasting”. Though the topic is not particularly new, new possibilities and new insights keep it on the agenda. The presentations and papers start from the concerning finding that, over the last fifty years, the accuracy of macroeconomic forecasts i...

This paper compares the forecasts of the outcomes of NFL games made by 31 statistical models with those of 70 experts who predicted the winners of 496 NFL games played in the 2000 and 2001 seasons. We also analyze the betting line predictions. There are nearly 18,000 expert and 12,000 statistical forecasts.The difference in the accuracy of the expe...

The Federal Reserve Greenbook forecasts of real GDP, inflation and unemployment are analysed for the period 1974-1997. We consider whether these forecasts exhibit systematic bias, and whether efficient use is made of information, that is, whether revisions to these forecasts over time are predictable. Rather than analyse the forecasts separately fo...

This study presents three tests of efficiency of the NFL betting market for the years 1994-2000. First, it tests for weak-form informational efficiency of the betting market. Then it examines whether the market incorporates objective information such as power scores and stadium characteristics that might be useful for predicting game outcomes. Fina...

This paper examines some economic forecasts made in late 1930 that were intended to predict economic activity in the United States in order to shed light on several methodological issues. We document that these forecasts were extremely optimistic, predicting that the recession in the US would soon end, and that 1931 would show a recovery. These for...

In 1989, BLS first projected estimates for the year 2000 of the labor force, employment, and occupations; in most cases, the accuracy of BLS projections were comparable to estimates from naive extrapolated models.

Rankings have predictive value for determining the outcomes of basketball games and tennis matches. Rankings, based on power scores, are also available for NFL teams. This paper evaluates power scores as predictors of the outcomes of NFL games for the 1994–2000 seasons. The evaluation involves a comparison of forecasts generated from probit regress...

We examine Italian inflation rates and the Phillips curve with a very long-run perspective, one that covers the entire existence of the Italian lira from political unification (1861) to Italy's entry in the European Monetary Union (end of 1998). We first study the volatility, persistence and stationarity of the Italian inflation rate over the long...

Macroeconomic forecasts are used extensively in industry and government. The historical accuracy of US and UK forecasts are examined in the light of different approaches to evaluating macroforecasts. Issues discussed include the comparative accuracy of macroeconometric models compared to their time series alternatives, whether the forecasting recor...

This paper questions whether the spread between long and short-term interests rates is a good cyclical indicator of US economic activity. Probit regressions using the term spread as an independent variable are used to forecast the probability of a recession and the forecasts are evaluated. Using alternative probability thresholds, the turns that we...

U.S. industrial production data published in 1929-30 show a steep drop in production from June to December 1929 and a substantial recovery by February 1930. Revised data used in recent analyses of the Great Depression show a smaller decline in 1929 and no recovery period. This paper identifies differences in seasonal patterns as an important source...

To successfully implement monetary policy, the Federal Reserve System (FED) must make forecasts about the future state of the economy. This paper examines some of the characteristics of these forecasts. The analysis presents the usual error measures and tests for rationality. The paper compares these predictions with those generated by ARIMA models...

I modify the uniform-price auction rules in allowing the seller to ration bidders. This allows me to provide a strategic foundation for underpricing when the seller has an interest in ownership dispersion. Moreover, many of the so-called "collusive-seeming" equilibria disappear.

This paper examines the forecasts of the Federal Reserve and compares our results with those that Jansen and Kishan published earlier. Our findings with regard to rationality differ from the earlier study because we cannot conclude that the current quarter GNP forecasts are biased. The paper attempts to explain why the two sets of results differ.

This paper examines the forecasts that were prepared prior to and during the early stages of the recession that occurred in 1990 in the United States. It examines the characteristics of those forecasts, the data that were available and attempts to determine why the forecast errors occurred. Private sector and public sector predictions are compared...

The relationship between two sets of GNP data, the earliest and the first revisions, is examined. This comparison enables us to determine whether the early numbers are valuable to forecasters. The analysis uses two methods. The first is based on a technique which has been used to evaluate whether financial and economic forecasts are valuable to the...

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 mod...

This paper examines the interest rate forecasts of a cross-section of financial forecasters to determine whether these analysts make predictions which have the characteristics of a consensus. The forecasts are published semi-annually in The Wall Street Journal. The techniques for determining whether a consensus exists are developed and are applied...

This paper examines interest rate forecasts made for the period 1982–90 and examines three issues: (1) Is there a general agreement among analysts about the level of interest rates six months in the future? (2) Are all the forecasters equally good? (3) Are the forecasts valuable to prospective users? We use distributions of the cross-sections of fo...

This paper simulates a macroeconomy under conditions of extreme excess demand (such as might occur in wartime). These simulations assume the model represents reality, and that when the model breaks down, that the economy would have experienced severe strains. The WEFA model is used to forecast the behavior of the economy and then to analyze policy...

A previous study questioned whether the published forecasts of one forecasting organization were valuable to users. A forecast was considered valuable if it differed significantly from a naive model in the sense of predicting the direction of change. The results indicated that it was not possible to show that the one-quarter-ahead predictions were...

Most forecast evaluations do not test whether the predictions are statistically significantly better than naive forecasts. This note describes how an existing test can be used to test the hypothesis that predictions are superior to naive forecasts.

The long-term forecasts of employment in different industries are evaluated. A statistical measure which may be used to test the hypothesis that the forecasts provide an accurate picture of the structure of the labour market is used. The statistical measure is based on information theory. The results were mixed with respect to the hypothesis, with...

Given the significance of forecasting in real estate investment decisions, this paper investigates forecast uncertainty and disagreement in real estate market forecasts. Using the Investment Property Forum (IPF) quarterly survey amongst UK independent real estate forecasters, these real estate forecasts are compared with actual real estate performa...

This paper analyzes the economic impacts that would result from a reduction in defence spending. Simulations using publicly available models are used for this analysis, which includes an examination of alternative means of reducing Department of Defense expenditures. Both the macroeconomic and industrial impacts of defence reductions are described.

A technique developed for evaluating the market timing of financial managers was previously applied to GNP forecasts. This paper demonstrates that a similar procedure may be used to determine whether inflation forecasts are valuable.

This article applies a technique developed by Robert C. Merton (1981) and Roy D. Henriksson and Robert C. Merton (1981) for evaluating the market timing of financial managers to macroeconomic predictions of change. This methodology may be used to determine whether the predictions may be of value to the user. As an illustration, the methodology is a...

This paper examines whether the quality or accuracy of macroeconomic forecasts improves significantly as the forecast lead or horizon is reduced. The analysis utilizes descriptive statistics as well as a number of different procedures to determine whether there is a statistically significant difference in the accuracy of the predictions at the vari...

This article suggests that the emphasis on forecast evaluations should be redirected from searching for “best” forecasters to finding those who are “better.” A new methodology is developed, and the results indicate that it is possible to identify “better” forecasters.

This paper analyzes technological change in the U.S. military aircraft industry. It divides this technological change into two components, methods of production and product quality innovations. The basic findings of this paper are obtained from a comparison of the F-4 and F-15 technologies. The results show that new production technologies reduce t...

This paper presents a new, comprehensive and detailed model of construction activity. The model is intended primarily for forecasting applications. The model generates forecasts of new construction starts for each of the 50 states of the United States. Forecasts are made for 29 types of structures. The paper presents evidence that the structure of...

This paper examines the forecasting accuracy of an airframe cost-estimating relationship to determine whether such a relationship, which contains no explicit technological change variables, might exhibit any forecasting biases. The results indicate that forecasting biases exist.

This note analyzes the employment impacts of three different types of public construction projects. These impacts involve the labor content of a construction dollar, the time pattern of employment, and the labor force composition.

This paper analyzes the effects that technological change might have upon the price of weapon systems. It also examines and evaluates the existing cost estimating methodologies to determine whether they are appropriate in the presence of dynamic structural changes. A methodology for relating production processes to costs and cost estimating methodo...

This note analyzes the forecasts of a regional econometric construction model. Both a conventional method and a newer technique are used to evaluate these predictions.

This note will examine data revisions in a subset of the U.S. international transaction statistics to determine whether the earliest and final data show similar patterns.

This note presents a description of a computerized information system (including an econometric model) that will provide analyses of construction labor demand in local areas. In addition, preliminary results from the housing sector of the model are presented.

This article examines two aspects of the forecasting record of the Index of 12 Leading Series (ILS). First, its record as an indicator of major cyclical turns is analyzed and compared with the first difference of the Federal Reserve's Index of Production. Subsequently, the ILS is used as a quantitative predictor of the Index of Production. The resu...

The aim of the paper is to check the influence of the degree of forward-lookingness of economic agents on the optimal monetary policy rules, using several versions of a small, highly aggregated structural model describing the transmission mechanism in the spirit of the New Keynesian School. We show the optimal policy rule with the monetary authorit...

The Federal Energy Regulatory Commission (FERC) is developing proposed rulemaking to resolve outstanding issues concerning the Incentive Rate of Return (IROR) mechanism to be used for segments of the Alaska Natural Gas Transportation system (ANGTS). This paper examines the inflation adjustment mechanism and recommends a key component -- the index -...

This paper presents a new methodology to evaluate the impact of forecast errors on policy. We apply this methodology to the Federal Reserve forecasts of U.S. real output growth and the inflation rate using the Taylor (1993) monetary policy rule. Our results suggest it is possible to calculate policy forecast errors using joint predictions for a num...

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics and Social Science, 1959. Includes bibliographical references (leaves 135-136). Vita.

This note evaluates the forecasting accuracy of the index of consumer sentiment constructed by the Michigan Survey Research Center. For the most part, other analyses have focused on the interpretation which should be given to an attitude variable or broadly described movements of the index of consumer sentiment in the vicinity of cyclical turning p...