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Bias in Official Fiscal Forecasts: Can Private Forecasts Help?

By: Jeffrey A. Frankel and Jesse Schreger
  • Format:Print
  • | Language:English
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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, using private sector forecasts as an input into the government budgeting-making process would probably reduce official forecast errors for budget deficits.

Keywords

Forecasting and Prediction; Macroeconomics

Citation

Frankel, Jeffrey A., and Jesse Schreger. "Bias in Official Fiscal Forecasts: Can Private Forecasts Help?" NBER Working Paper Series, No. 22349, June 2016.

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