How Biased are U.S. Government Forecasts of the Federal Debt?
48 Pages Posted: 15 Jan 2017
Date Written: 2017-01-06
Government debt and forecasts thereof attracted considerable attention during the recent financial crisis. The current paper analyzes potential biases in different U.S. government agencies’ one-year-ahead forecasts of U.S. gross federal debt over 1984-2012. Standard tests typically fail to detect biases in these forecasts. However, impulse indicator saturation (IIS) detects economically large and highly significant time-varying biases, particularly at turning points in the business cycle. These biases do not appear to be politically related. IIS defines a generic procedure for examining forecast properties; it explains why standard tests fail to detect bias; and it provides a mechanism for potentially improving forecasts.
Keywords: Autometrics, Bias, Debt, Federal government, Forecasts, Impulse indicator saturation, Heteroscedasticity, Projections, United States
JEL Classification: H68, C53
Suggested Citation: Suggested Citation