THE ACCURACY OF OECD FORECASTS OF THE INTERNATIONAL ECONOMY - BALANCEOF PAYMENTS

This paper examines the accuracy of forecasts of the International eco nomy made by the OECD. Our large data set, comprising some 5500 pairs of forecasts and outcomes, includes one-, two-, and three-step ahead s emi-annual forecasts of eight components of the balance of payments fo r the G7 economies over a 20-year period. There is considerable variat ion in the accuracy of these forecasts. Although they are generally su perior to naive and time-series predictions, there are some marked exc eptions particularly as the forecast horizon lengthens. Forecasting er ror is overwhelmingly non-systematic. However, our study reveals numer ous instances of forecasts which could be improved by a simple linear correction, or by incorporating information contained In known, recent forecast errors. The OECD's forecasts of services and private transfe rs, and official transfers are cause for particular concern the accura cy of these forecasts is low, often below that of corresponding time-s eries forecasts, and rationality tests indicate that they are most pro ne to inefficiency and inconsistency. (C) 1997 Elsevier Science Ltd. A ll rights reserved.