Forecasts in Times of Crises

34 Pages Posted: 15 Nov 2018

See all articles by Theo Eicher

Theo Eicher

University of Washington

David Kuenzel

Wesleyan University

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department

Christofides Charas

International Monetary Fund (IMF) , Policy Development and Review

Date Written: March 2018

Abstract

Financial crises pose unique challenges for forecast accuracy. Using the IMF's Monitoring of Fund Arrangement (MONA) database, we conduct the most comprehensive evaluation of IMF forecasts to date for countries in times of crises. We examine 29 macroeconomic variables in terms of bias, efficiency, and information content to find that IMF forecasts add substantial informational value as they consistently outperform naive forecast approaches. However, we also document that there is room for improvement: two thirds of the key macroeconomic variables that we examine are forecast inefficiently and 6 variables (growth of nominal GDP, public investment, private investment, the current account, net transfers, and government expenditures) exhibit significant forecast bias. Forecasts for low-income countries are the main drivers of forecast bias and inefficiency, reflecting perhaps larger shocks and lower data quality. When we decompose the forecast errors into their sources, we find that forecast errors for private consumption growth are the key contributor to GDP growth forecast errors. Similarly, forecast errors for non-interest expenditure growth and tax revenue growth are crucial determinants of the forecast errors in the growth of fiscal budgets. Forecast errors for balance of payments growth are significantly influenced by forecast errors in goods import growth. The results highlight which macroeconomic aggregates require further attention in future forecast models for countries in crises.

Keywords: Financial crises, Forecasting, IMF Programs, Economic forecasting, Gross domestic product, Balance of payments, GDP Growth, Financial Accounts, Fiscal Accounts, Forecasting and Other Model Applications, General, Forecasting and Simulation

JEL Classification: C53, C50, F30, F47

Suggested Citation

Eicher, Theo and Kuenzel, David and Papageorgiou, Chris and Charas, Christofides, Forecasts in Times of Crises (March 2018). IMF Working Paper No. 18/48. Available at SSRN: https://ssrn.com/abstract=3285231

Theo Eicher (Contact Author)

University of Washington ( email )

Seattle, WA 98195
United States

David Kuenzel

Wesleyan University ( email )

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Christofides Charas

International Monetary Fund (IMF) , Policy Development and Review ( email )

700 19th St. NW
Washington, DC 20431
United States

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