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> One big reason economic forecasting is so hard is that agents in the system you are forecasting are taking your present period forecast into account when acti
by matt4077 10y ago
> One big reason economic forecasting is so hard is that agents in the system you are forecasting are taking your present period forecast into account when acting in future periods.
Meh, that's not terribly convincing, as far as excuses go. For GDP predictions, for example, there are many competing institutions publishing forecasts for any number of countries, sectors, etc. It'd be impossible to take them all into account, especially when they don't agree.
I'm also not sure if "taking it into account" wouldn't actually lead to the opposite: self-fulfilment of those prophesies. After all, the prevalent reaction to an expectation of high growth would be to invest, thus creating that growth.
- VHRanger 10y agoRight. What I said is generally true for Central Bank forecasts, because they have an effect on interest rates (which they set). But the expectation of change in interest rates changes lending and borrowing behavior now, etc. That said, it's generally doable to do serious forecasts for a few months in advance, but the error bars explode after that.