Does a wider distribution of forecasts predict “recessions”? — Tishya Kakar
I recently worked as a research fellow at the H. O. Stekler Research Program on Forecasting. My project tried to answer a simple question — why don’t we see economic recessions coming?
Recessions are defined as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.” We know it as a time of increasing inflation, and decreasing employment and income. These negative shocks to economies have long-lasting effects on certain industries and countries, and globalization has only intensified the ripple effect to all corners of the world. As evident from the COVID-19 recession, economies are very vulnerable, especially in a time when developed and developing countries alike have extremely high debt-to-GDP ratios.
According to research by An, Jalles, and Loungani of the International Monetary Fund, economists failed to predict 148 of 153 recessions in a study of 63 countries between 1992 and 2014. So, why is it that seasoned forecasters who have access to all the information needed to make accurate predictions have not actually predicted recessions in the past?
Perhaps the distribution of forecasts and the extent of disagreement among forecasters tells us something?
Read my research blog to learn more.
