Bias in Official Fiscal Forecasts: Can Private Forecasts Help?

Citation:

Frankel J, Schreger J. Bias in Official Fiscal Forecasts: Can Private Forecasts Help?. NBER Working Papers. Working Paper;(22309).

Abstract:

Government forecasts of GDP growth and budget balances are generally more over-optimistic than private sector forecasts. When official forecasts are especially optimistic relative to private forecasts ex ante, they are more likely also to be over-optimistic relative to realizations ex post. For example, euro area governments during the period 1999-2007 assiduously and inaccurately avoided forecasting deficit levels that would exceed the 3% Stability and Growth Pact threshold; meanwhile private sector forecasters were not subject to this crude bias. As a result, the budget-making process could probably be improved by using private-sector forecasts. 

Last updated on 08/17/2016