Evaluating the OECD's forecasts for economic growth
The size and nature of the errors in GDP forecasts in the G-7 countries from 1968 to 1995 are examined. These GDP estimates are published by the Organization for Economic Cooperation and Development in OECD Economic Outlook . Two alternative hypotheses are tested concerning why revisions arise. The first hypothesis is that preliminary announcement is simply the true variable measured with error. In this case, the preliminary announcement is an unconditionally unbiased but irrational forecast of the true value. That is, the revision is correlated with known variables. In particular, it is correlated with the preliminary announcement itself. The second hypothesis is that revisions arise because the early GDP estimates are a rational forecast of the true variable. In this case, the error is a rational forecast error and is therefore uncorrelated with known information.