How Biased are U.S. Government Forecasts of the Federal Debt?

48 Pages Posted: 15 Jan 2017

See all articles by Neil R. Ericsson

Neil R. Ericsson

Board of Governors of the Federal Reserve System

Date Written: 2017-01-06

Abstract

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

Ericsson, Neil R., How Biased are U.S. Government Forecasts of the Federal Debt? (2017-01-06). FRB International Finance Discussion Paper No. 1189, Available at SSRN: https://ssrn.com/abstract=2899306 or http://dx.doi.org/10.17016/IFDP.2017.1189

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Board of Governors of the Federal Reserve System ( email )

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