Narayana Kocherlakota, Columnist

Economic Forecasting Is Still Broken

There's ample reason to worry that policy makers are flying blind.

May 19, 2017 at 1:37 PM UTC

Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.

Watch out for downside risk.
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Economists still get a lot of flak for failing to predict the 2007-2009 recession. These criticisms are often misguided. Nonetheless, there's an important sense in which forecasting models were badly mistaken -- and probably remain so today.

Critics of forecasting tend to misunderstand its purpose. Forecasters know perfectly well that, in a random world, the one certainty is that their predictions will be wrong. If an economist says that she expects real gross domestic product to grow about 2 percent in 2017, she is really just providing something close to the midpoint of what she knows to be a wide range of possible outcomes. She is almost completely certain that growth will turn out to be higher or lower than 2 percent.