01/01/2008
A Note on the Diachronic  Behaviour of the OECD Forecasts for Greece

A Note on the Diachronic Behaviour of the OECD Forecasts for Greece

In this short paper a Gamma distributed lags model is used to study the diachronic responses between the actual data and the forecasts supplied by OECD the last 27 years for the case of the Greek Economy.

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Published in: Journal of Computational Optimization in Economics and Finance

Every year and half-year the OECD provides projections of several economic variables, published in the OECD Economic Outlook. Because these forecasts are used extensively by governmental and nongovernmental organizations, it is useful to examine their accuracy. The assessment provided here differs in approach from earlier assessments, but its purpose is similar. Since 1967 the Organisation for Economic Co-operation and Development (OECD) has published semi-annual forecasts of economic activity in its seven largest Member countries Canada, France, Germany, Italy, Japan, the UK and the USA. These forecasts, the last years extended to include all country members of the Organisation, covering the major components of demand and output, inflation and the balance of payments.

According to Llewellyn J and Arai H. ,( 1984) the OECD aims to "produce an integrated set of internationally consistent country forecasts, taking into account the linkages between economies". Across the years the forecasting methods employed by the OECD have evolved from the systematic but relative informal "pooling or confronting" of Member country forecasts first dubious by Mc Mahon (1965), to a current large INTERLINK system of formal macroeconometric models which ensures consistency in forecasting world trade flows, capital flows and domestic economic developments. Llewellyn J and Arai H.,(1984) explain the structure of INTERLINK and how the system is used for forecasting; OECD forecasting techniques are summarised in the Technical Appendix to each issue in the OECD Economic Outlook; details of relevant research appear from time to time in the OECD Economics and Statistics Department's Working Papers and Occasional Studies, for example Richardson (1988), Artis, M.J (1988), Ballis B., (1989), Barrionuevo, (1993), and Koutsogeorgopoulou, V. (2000). The OECD publishes its forecasts twice a year in the June/July and December issues of OECD Economic Outlook making available one-two and three step ahead forecasts. The forecasts cover the current and the next calendar years.

Although a lot of attention has been paid to analyse the performance of these one-two and three step ahead OECD forecasts using standard forecasting performance measures (to mention only a few of these studies : Ash J. C. K.,et all (1990,1991) Ballis B., (1989), Holden K. and Peel D.A., (1985) , (1990) ,Holden K., et all (1987), Llewellyn J. and Arai H., (1984). Richardson P., (1988),Smyth D.J.,(1983) , Smyth D.J. and Ash J.C.K., (1981) , Artis, M.J. (1988), Barrionuevo,(1993), DeMasi, P.(1996), Kreinin, M.(2000), Koutsogeorgopoulou V. (2000), Vuchelen, J. and Gutierrez, M.(2005)), little has been done to analyse the diachronic relationships between these forecasts and the actual data. Traditional error measures, such as mean square error, do not provide a reliable basis for comparison of forecasting methods (for empirical evidence on this, see Armstrong and Collopy 1992).

In this paper , using Greek data ,we analyse the diachronic relationship between the actual data and the one-, two- and three-step ahead OECD forecasts, henceforth denoted by F , F and F respectively, for seven macroeconomic variables. The 1t 2t 3t model we use to study the above diachronic relations is a Gamma Distributed Lags model (Schmidt Peter (1974)).

For the case of Greece to date, we have not seen studies of this kind on the forecasting ability of the OECD. In a lot of studies the analysis of the OECD forecastst performance for Greece is only a part of a panel of countries and usually refer to a few economic magnitudes using some standard (Theil (1966)) forecasting performance measures and tests Exception are the studies of Tserkezos Dik.(1996a, 1996b, 1996c, 1997 ,and 1998 ) were the diachronic behaviour of the OECD forecasts is compared with the actual data. Some of these studies have been conducted concerning the forecasting ability of the Greek Ministry of National Economy Forecasts (Tserkezos (1997), (1996b)) for basic macroeconomic variables of the Greek Economy and some of these studies concerning the forecasts of the OECD for Greece . Although these studies use a different sample period, appears to indicate that there is still much room for improvement. 

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