Skip To Nav

Site-specific menu

Share |

Book assesses how economists missed predicting Great Recession

by Jeanne Baron

Dec. 5, 2011 | WMU News

KALAMAZOO--A Western Michigan University faculty member has edited a book that assesses economic forecasting methods in the wake of one of the greatest recent economic downturns--the Great Recession.

"Advances in Economic Forecasting," edited by Dr. Matthew L. Higgins, associate professor of economics, was published in November by the Upjohn Institute for Employment Research. It features six papers presented for WMU's 2009–10 Werner Sichel Lecture-Seminar Series.

With a few notable exceptions, the economics profession missed predicting Great Recession, despite a wealth of data sources and sophisticated statistical modeling techniques at their disposal. That situation serves as the backdrop for "Advances in Economic Forecasting," which critiques the ever-advancing modeling techniques used for making economic projections and the data sources employed by these techniques.

The book presents six chapters devoted to how the reliability of economic forecasts can be improved. Three of the chapters focus on forecasting in real time while predicting turning points for macro aggregate measurers such as gross domestic product, inflation, growth and unemployment. The authors of two chapters argue that data can more be more efficiently exploited through model and forecast combination. They, along with the authors of another chapter, also advocate using models that are adaptive and perform well in the presence of nonlinearity and structural change.

Higgins has been a WMU faculty member since 1995. He focuses his research on econometric methods for understanding how uncertainty about the future affects the economy, specifically econometric theory, time series analysis and forecasting.

His most recent research deals with economic forecasting, and Higgins has found methods for optimal forecasting when forecast errors have asymmetric costs. At present, he is studying how professional economic forecasters, who use heterogeneous information and models, arrive at a consensus view of the future.