SOURCES OF TURNING-POINT FORECAST ERRORS

Little attention has been devoted to explaining the failure to predict the turning points at the beginning of recessions. This note builds o n a model that showed that a turning point might not be predicted if f orecasters' prior probabilities of a recession were low. Costs associa ted with various types of errors might also produce this result. A mod el is developed and then applied to a particular US business cycle ind icator. The results show that costs as well as priors may contribute t o this type of forecasting error.