
Some implications of the Bank of England comparing itself to the MetOffice - mr_tyzic
http://magic-maths-money.blogspot.com/2017/01/some-implications-of-bank-of-england.html
======
Normal_gaussian
The largest problem with forecasting in economics is surely that others are
also forecasting and attempting to manipulate the system. With weather
forecasting the result doesn't change just because it can be calculated.

~~~
matt4077
It's not so much "trying to manipulate" (in the malicious sense) but that
economic forecasts tend to be self-fulfilling prophecies. If you think a stock
is undervalued you'll buy it , which will raise the price. If you think the
economy will grow, you'll invest, which will cause the economy to grow.

The result is the "efficient market hypothesis" which posits that all public
information is already reflected in market prices to the best of our abilities
(with a bit of swarm intelligence and darwinian selection making it unlikely
that an individual can beat the market on ability).

All that's usually applied to prices but other indicators like unemployment
may simply correlate to such a degree that it extends to them as well.

~~~
smallnamespace
It's usually applied to prices because the assumption is that the _act of
trading on perceived incorrect prices causes the price to converge to the
market 's expectations_.

Whereas for employment, you would need a mechanism that allows for 1) a public
prediction of what the future unemployment path is and 2) a way for people to
put money down if they disagree, such that it actually directly impacts
unemployment.

------
nl
I don't get it.

Of course the economy is non-deterministic. That doesn't mean that useful
forecasts can't be made. Statistical models are used because of this.

I agree of course that deriving and presenting a single forecast from a
statistical model is a dangerous process. Perhaps this was the link the author
was portraying by their quest for an Isobar map rather than just "Rain/Non
rain".

(Also, I see others are looking at "economic forecasting" as price
forecasting. I read this more as macro-economic forecasting, in which the
outcomes are much to manipulate)

~~~
matt4077
Oh, I agree that it doesn't make much sense. Especially considering that
weather forecasting is basically the index case for "hard to predict", i. e.
chaos theory.

I actually did an analysis of GDP growth forecast for my thesis. If I remember
correctly, only the forecasts made in October or later (for that year!) were
better than just using the long-term averages – all across central banks and
renown research institutions.

(Although I should add that the blanket dismissal of economics many draw from
such examples may also be a bit to simplistic. It seems like we do have a much
better set of tools these days than we had a hundred years ago and even if a
crisis hits, we may be better at controlling it before people are starving or
starting wars)

~~~
nl
Are you the author?

