Forecasting GDP growth in times of crisis: private sector forecasts versus statistical models

This chapter examines the forecasting accuracy of linear statistical models tailored to forecast GDP growth in the adjacent quarters, with a special focus on the dot-com recession of 2001-2002 and the financial crisis of 2008-2009. The forecasting accuracy of the mechanical models is confronted with the forecasting accuracy of professional analysts, and it is evaluated whether a combination of the two can improve forecasting performance. The analysis covers the Netherlands over the years 1995{2010. Overall, the recently proposed dynamic factor model showed the highest forecasting accuracy of all models considered. During the recent financial crisis, the forecasting accuracy of all models deteriorated. The dynamic factor model shows the smallest deterioration of all models considered. Interestingly, enhancing the forecasts of the dynamic factor model with the judgmental forecasts of professional analysts can increase the forecasting accuracy, but only during the financial crisis.

Download working paper here

Recommended citation: de Winter, J.M. (2011), Forecasting GDP growth in times of crisis: private sector forecasts versus statistical models, DNB Working Paper nr. 320.