OECD Forecasts Errors Reviewed

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(CC) de la OCDE / Flickr

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.