Monday, May 16, 2016

Evaluating The Accuracy Of The Atlanta Fed's GDPNow Forecasts

From the Federal Reserve Bank of Atlanta's Macroblog: 

GDPNow and Then
Real-time forecasts from the Atlanta Fed’s real gross domestic product (GDP) nowcasting model—GDPNow—have been regularly updated since August 2011 (the model was introduced online in July 2014). So we now have a nearly five-year history to allow us to evaluate the accuracy of the model’s forecasts. The chart below shows forecasts from GDPNow (red dots) alongside actual first estimates of real GDP growth (gray bars) from the U.S. Bureau of Economic Analysis (BEA). For comparison, the blue dots in the chart are the consensus (average) forecasts from the Wall Street Journal Economic Forecasting Survey (WSJ Survey).

The initial estimate of real GDP growth for a particular quarter is usually published at the end of the subsequent month. The WSJ Survey consensus forecasts plotted above were released about two weeks before these estimates. To maintain comparable timing with the WSJ Survey, the GDPNow forecasts shown in the chart are those constructed on or before the 12th day of the same month.

Occasionally, there has been relatively large disagreement between GDPNow and the WSJ consensus. For example, GDPNow predicted that GDP growth would be below 0.5 percent for five out of 19 quarters between 2011 and 2016, and the lowest WSJ Survey consensus forecast for any of those quarters was 1.3 percent. Nonetheless, the average accuracy of the GDPNow and WSJ Survey consensus forecasts has been similar: the average absolute forecast error (average error without regard to sign) for GDPNow was 0.56 versus 0.60 for the WSJ Survey consensus.

Studies have shown that the average or median of a set of professional forecasts tends to be more accurate than an individual forecaster (see, for example, here and here). Therefore, it’s surprising that GDPNow has been about as accurate on average as the WSJ Survey consensus....MORE