How Reliable are Economic Forecasts?
How accurate are economic forecasts? The “joke” goes put 12 economists in a room and you’ll get 13 different answers. I think it was President Truman who, exasperated at the economic profession, yearned for a “one armed economist” What Truman meant is he wanted an economist who wouldn’t invariable go onto the other point of view. It is the same with economic forecasts ask economists predictions for future house price inflation in the UK and you could get answers ranging from -7% to +10% Economic forecasting is important. For example it is the basis of the UK’s pre emptive monetary policy. Because there is a time lag in interest rates having a deflationary effect, it is important to be able to predict future inflation. If inflation is forecast to rise then the MPC knows it needs to increase interest rates now to avoid inflation in the future. However if forecasts turned out to be wrong then they could easily increase interest rates too much, causing a slowdown in the economy. In recent
