Home  Journals  Financial Analytics: Science and Experience  43(277) - 2015 November

Macroeconomic forecasting: the composition of probabilities versus the conflict of scenarios

Vol. 8, Iss. 43, NOVEMBER 2015

Article PDF Version

Received: 2 September 2015

Accepted: 8 September 2015

Available online: 25 November 2015

Subject Heading: Economic policy

JEL Classification: 

Pages: 13-21

Importance The scenario-based approach to macroeconomic forecasting met criticism amid the uncertainty of economic development. Economic agents demonstrate little confidence in official forecasts, since there is much difference between official forecasts and consensus projections of businesses, documents of various agencies, and such forecasts are frequently revised. In this respect, the government recommends to make long-term socio-economic forecasts.
     Objectives The research strives to formulate an alternative option of the scenario-based approach to macroeconomic forecasting, identify differences in approaches to agencies' official forecasting, discuss their probabilistic forecasting method as a mutually acceptable way.
     Methods Scenario-based approaches are evaluated using the single criterion of forecasted scenarios probability in terms of agencies' risk management capabilities.
     Results Illustrating inefficiencies of the scenario-based approach, we prove that plurality of apriori unresolvable forecast models stems from apriori lower probability when probabilities of several scenarios coincide as compared with one of them. The results may be used to articulate the national economic policy and improve the legislative framework of strategic planning.
     Conclusions and Relevance The probabilistic approach and relativity of its use depending on risk management capabilities are more effective in the current circumstances, rather than the scenario-based approach that appears ineffective for economic forecasting purposes.

Keywords: macroeconomic forecasting, probabilistic approach, risk management, fiscal capacity

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