July 30, 2009
Today CBO released an evaluation of the accuracy of its economic forecasts by comparing those forecasts with the economys actual performance and with the projections of other forecasters. The study examines the two-year ahead forecast accuracy and the five-year ahead forecast accuracy for a variety of macroeconomic variables, such as real GDP, inflation, and interest rates. Thirty-two CBO forecasts, those made early each year from 1976 to 2007, are included in the study. Such evaluations help guide CBOs efforts to improve the quality of its forecasts and also assist Members of Congress in their use of CBOs estimates.
Since publishing its first macroeconomic forecast in 1976, CBO has compiled a forecasting track record that is comparable in quality with that of the Administration and that of the Blue Chip consensus. In particular, the accuracy of CBOs two-year forecasts between 1982 and 2007 paralleled that of the forecasts published by the Blue Chip consensus and the Administration over the same period. The accuracy of CBOs five-year projections also generally corresponded to that of other forecasters, although the Administrations projections of types of income (such as wages and salaries, and profits) as a share of national output had slightly smaller errors. Comparing CBOs forecasts with those of the Blue Chip consensus suggests that when the agencys predictions of the economys performance missed by the largest margin, those errors probably reflected problems shared by other forecasters in predicting turning points in the business cycle.
CBOs forecasting record provides a measure of the uncertainty underlying forecasts under normal circumstances. However, the current degree of economic dislocation exceeds that of any previous period in the past half-century, so the uncertainty inherent in current forecasts exceeds the historical average.