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The Accuracy of Economic Forecasts

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Jon Welsh/flickr
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Economists generate lots of forecasts. Usually, we offer many caveats along with our estimates, indicating that the accuracy of our forecasts is threatened by a set of risks. Risks can take many forms, including geopolitical risks like war or terror, policy risks such as unanticipated actions by the Federal Reserve or a presidential administration, or sudden financial market corrections.

Each month, The Wall Street Journal conducts a survey of academic, financial and business estimates regarding their expectations for gross domestic product, inflation, unemployment and a range of other economic indicators. Forecasters are also asked to assess whether the risk to their forecast is to the upside or the downside.

In other words, if their forecast turns out to be wrong, is it more likely that economic outcomes will be better or worse than expected. In the most recent survey, 64 percent of respondents said that the risk was to the upside, the highest in more than two years. Forecasters indicate that anticipated business friendly regulatory changes, tax cuts, and infrastructure spending could produce better than forecasted outcomes in 2017 and 2018.

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.