SHORT-TERM FORECASTING OF INDUSTRIAL-PRODUCTION WITH BUSINESS SURVEY DATA - EXPERIENCE FROM FINLAND GREAT-DEPRESSION 1990-1993

The severe Finnish recession in the early 90s provides an interesting testing ground for forecasting models specified and estimated before t he recession. We use recent data to evaluate some short-term forecasti ng models for industrial production. The main explanatory variables ar e from business surveys and the models themselves are based on the use of the Kalman filter. The recession years present difficulties for fo recasting especially in the textile industry and metal industry. In th e food industry and to some extent in the forest industry the forecast ing performance during the recession is actually better than in earlie r periods. Mechanical re-estimation of the models yields better foreca sting results in four out of six branches studied. The importance of b usiness survey information, however, seems to have increased during th e recession. The improvement in prediction accuracy after taking accou nt of relevant business survey information is statistically significan t in the forest industry and in manufacturing of non-metallic products when the precision of autoprojective forecasts is used as a baseline.