The OECD has just published the report “OECD Forecasts During and After the Financial Crisis: A Post-Mortem”. The study analyzes why the OECD’s forecasting under-predicted the depth of the collapse in activity in 2008-09 and over-estimated the pace of the resultant recovery.
The main findings are that:
-GDP growth was overestimated on average across 2007-12.
-The forecast errors were larger in countries that are more open to external developments and hence exposed to shocks from other economies.
-Larger forecast errors over 2007-12 have occurred in countries with more stringent pre-crisis labor and product market regulations.
-Growth in the recovery has been weaker relative to predictions in countries in which banks had low capital ratios pre-crisis.
The report highlights the need for better modeling methods and new approaches for making and presenting projections.