Working Paper

How Biased Are U.S. Government Forecasts of the Federal Debt?


Abstract: Government debt and forecasts thereof attracted considerable attention during the recent financial crisis. The current paper analyzes potential biases in different U.S. government agencies? one-year-ahead forecasts of U.S. gross federal debt over 1984-2012. Standard tests typically fail to detect biases in these forecasts. However, impulse indicator saturation (IIS) detects economically large and highly significant time-varying biases, particularly at turning points in the business cycle. These biases do not appear to be politically related. IIS defines a generic procedure for examining forecast properties; it explains why standard tests fail to detect bias; and it provides a mechanism for potentially improving forecasts.

Keywords: Autometrics; Bias; Debt; Federal government; Forecasts; Impulse indicator saturation; Heteroscedasticity; Projections; United States;

JEL Classification: H68; C53;

https://doi.org/10.17016/IFDP.2017.1189

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2017-01-06

Number: 1189

Pages: 45 pages