Scandinavian Working Papers in Economics

Working Papers,
National Institute of Economic Research

No 72: The Accuracy of European Growth and Inflation Forecasts

Lars-Erik Öller () and Bharat Barot
Additional contact information
Lars-Erik Öller: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Bharat Barot: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden

Abstract: One-year-ahead forecasts by the OECD and by national institutes of GDP growth and inflation in 13 European countries are analysed. RMSE was large: 1.9 % for growth and 1.6 % for inflation. Six (11) OECD and 10 (7) institute growth forecast records were significantly better than an average growth forecast (the current year forecast). All full record-length inflation forecasts were significantly better than both naive alternatives. There was no significant difference in accuracy between the forecasts of the OECD and the institutes. Two forecasts were found to be biased and one had autocorrelated errors. Directional forecasts were significantly better than a naive alternative in one-half of the cases. Overall, inflation forecasts were significantly more accurate than growth forecasts, and in contrast to growth forecasts, they generally improved over time. This has implications for economic policy. Positively biased revisions reveal large errors in data.

Keywords: Forecast accuracy; Directional errors; Forecast tests

44 pages, February 1, 2000

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