Should economists forecast?
- The final morning audio of 2017 reviews some of the issues of the final Chief Economist's Comment of the year. Should economists forecast? The answer, I believe, is "no" – in the sense that forecasts are understood in financial markets.
- Economic data is not stable enough to forecast accurately. At the start of 2015, the US economy was on the brink of a nasty recession, or growing significantly above trend. It depends which revision you look at. Economic models have simplifying assumptions that affect forecasts; hashtag economics looks only at the forecasts, not the assumptions.
- Economic models can reveal "fake news" - disproving popular misconceptions. Economists are normally good at identifying relative trends, and predicting policy. The great challenge for economics is communication. Everyone makes economic decisions all of the time. Everyone can understand economics, but economists fail to communicate clearly. Twitter is not a suitable medium for economics (follow me @PDonovan_Econ), but we need to communicate with the Twitter generation.
- While the morning audio is on a short break, please visit www.ubs.com/nobel for more on what economics can do. As for the forecasts, do not worry about the decimal points. 2018 will have broadly trend growth, some policy tightening and maybe slightly higher inflation. That is all investors need to know.