Free exchange: A mean feat

Posted: January 8, 2016 in economy
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The Saudi blueprint

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Free exchange


Despite forecasters’ best efforts, growth is devilishly hard to predict

“THE only function of economic forecasting is to make astrology look respectable,” John Kenneth Galbraith, an irreverent economist, once said. Since economic output represents the aggregated activity of billions of people, influenced by forces seen and unseen, it is a wonder forecasters ever get it right. Yet economists cannot resist trying. As predictions for 2016 are unveiled, it is worth assessing the soothsayers’ records.
Forecasters usually rely on two different predictive approaches. One is theory-based, shaped by how economists believe economies behave. The other is data-based, shaped by how economies have behaved in the past. The simplest of the theoretical bunch is the Solow growth model, named for Robert Solow, a Nobel-prize winning economist. It posits that poorer countries should generally invest more and grow faster than rich ones. Central banks and other big economic institutions use …

via Economic Crisis


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