10-04-2017, 08:19 PM
Economic forecasting, predicting any of the elements of economic activity. Such forecasts can be made in great detail or can be very general. In any case, they describe the expected future behavior of all or part of the economy and help form the basis of planning.
Formal economic forecasting is usually based on a specific theory about how the economy works. Some theories are complicated, and their application requires elaborate cause and effect tracking. Others are relatively simple, attributing the majority of developments in the economy to one or two basic factors. Many economists, for example, believe that changes in the supply of money determine the rate of growth of overall business activity. Others assign a central role to investment in new facilities: housing, industrial plants, roads, etc. In the United States, where consumers account for such a large proportion of economic activity, some economists believe that consumer decisions to invest or save provide the main clues for the future course of the entire economy. Obviously, the theory that applies a forecaster is of critical importance to the forecasting process; It dictates your line of research, the statistics you will consider most important, and many of the techniques you will apply.
Although economic theory can determine the general outline of a forecast, judgment also often plays an important role. A forecaster may decide that the circumstances of the moment are unique and that a forecast produced by standard statistical methods should be modified to take into account the current special circumstances. This is particularly necessary when an event outside the usual economic activity inevitably has an economic effect. For example, forecasts for 1987 economic activity in the United States were more accurate when the analyst correctly predicted that the dollar's exchange rate would fall sharply during the year, consumer spending would weaken, and interest rates would rise Only moderately. None of these conclusions comes from the purely economic analysis; All required judgment on future decisions. Similarly, an economist may decide to adjust an economic forecast that was made by traditional methods to take into account other unique conditions; It can, for example, decide that consumers will change their spending patterns because of special circumstances such as rising import prices or fears of a threatened shortage.
