Has the Accuracy of German Macroeconomic Forecasts Improved?

Abstract

This paper asks whether the accuracy of German macroeconomic forecasts has improved over time. We examine one-year-ahead forecasts of rates of real GDP growth and inflation for the years 1967 to 2010 by three major German forecasters and the OECD. We find that overall error levels are high but not much different from those for the U.S. and U.K. In the 1980s and 1990s accuracy improved somewhat, but has now returned to its 1970s level, indicating that it reflects the variance of growth and inflation. Benchmark comparisons of these predictions with ex post forecasts of a macroecono-metric model indicate that accuracy can be improved but it will be difficult to achieve.Forecast evaluations; macroeconomic forecasting; accuracy limits