How Reliable are Hungarian Macroeconomic Forecasts?

Abstract

Since reducing the possibility of risks that can be avoided – including risks associated with the uncertainty of the future – is of great importance in the economic arena, generations of economists have struggled and are still struggling (with mixed results) to develop ‘reliable’ forecasting techniques. Although some Hungarian organisations publish macroeconomic forecasts on a regular basis, their margins of error are rarely taken into account. For this reason, the authors examine how well actual processes are foreseen by the numerical forecasts published by the GKI Economic Research Co. for the next year. Their analyses are based on a 17-year comparable database, and present the development over time of indicators prognosticated and then published in statistics, take account of their differences (so-called estimation errors) and standard deviations, as well as the correlations of forecasts and statistics. They find that (in Hungary at least) the trends of certain indicators, the development of inflation or the GDP for instance, can in most cases be forecasted quite accurately, while other macroeconomic indicators (financial equilibrium indexes for example) and the turning points of business cycles in general can only be foreseen with considerable margins of error. Based on the above, they consider it necessary that economic policy take the margins of error of macroeconomic forecasts into consideration at all times.