PROFESSIONAL ECONOMIC FORECASTS - ARE THEY WORTH THEIR COSTS

Most economic forecast evaluations dating back 20 years show that prof essional forecasters add little to the forecasts generated by the simp lest of models. Using various types of forecast error criteria, these evaluations usually conclude that the professional forecasts are littl e better than the no-change or ARIMA type forecast. It is our contenti on that this conclusion is mistaken because the conventional error cri teria may not capture why forecasts are made or how they are used. Usi ng forecast directional accuracy, the criterion which has been found t o be highly correlated with profits in an interest rate setting, we fi nd that professional GNP forecasts dominate the cheaper alternatives. Moreover, there appears to be no systematic relationship between this preferred criterion and the error measures used in previous studies.