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.
File(s): File format is application/pdf https://www.federalreserve.gov/econresdata/ifdp/2017/files/ifdp1189.pdf
Part of Series: International Finance Discussion Papers
Publication Date: 2017-01-06
Pages: 45 pages