Economic Forecasting – Models or Markets?
7 May 1977
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Research
Economic Theory
Celebrating the first 20 years of the IEA
31 May 1977
Trade, Development, and Immigration
4 November 2024
The severe limitations of macro-economic policy
Economists and econometricians cannot ‘foresee’ the future. They have no theory about, and therefore cannot predict, ‘exogenous’ developments in the control of political affairs outside the economic system.
Forecasts are merely statements about the probability of a future event; their usefulness depends on a) the correctness of the theory and (b) the accuracy of the assumptions about the underlying conditions. If the theory is a) wrong (rejected by testing), or (b) does not apply to the given conditions, the forecast is invalid.
Politicians have taken drastic and precipitate action on the basis of casual observation or impressions from atypical events with no thought to testing the hypotheses used to justify their behaviour.
Forecasts are merely statements about the probability of a future event; their usefulness depends on a) the correctness of the theory and (b) the accuracy of the assumptions about the underlying conditions. If the theory is a) wrong (rejected by testing), or (b) does not apply to the given conditions, the forecast is invalid.
Politicians have taken drastic and precipitate action on the basis of casual observation or impressions from atypical events with no thought to testing the hypotheses used to justify their behaviour.
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