Forecasting economic uncertainty

In a special feature, SMU Associate Professor of Economics Anthony Tay pointed out that the primary purpose of macroeconomic forecasts is to convey the degree of uncertainty facing an economy. He noted that it is normal for forecasters to make forecast errors, as there will always be a large unpredictable component in any complex system centred on human interactions and human decisions, adding that all economic models are simplifications of the real economy. Associate Prof Tay highlighted that there has been much progress in developing models that forecast volatility, an area where several researchers at SMU’s School of Economics have made important contributions. He also discussed the various advantages of density forecasts, a complete probabilistic description of the future realisations of a variable, given some information set. He listed some examples of density forecasts and shared that his recent research is focused on producing models that can generate good macroeconomic density forecasts.