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Forecasting Techniques

Economic forecasting has long been an area of interest because of its connection with high finance, fortunes won and lost and the criticality of economic trends for the social and political welfare of the country. Numerous public and private organizations are devoted to the production of regular economic forecasts, and heavily funded research projects seek more accurate and reliable models on which to base these forecasts. While much attention is focused on the area of economic forecasting, and numerous computerized models have been developed to predict economic performance, the reliability and accuracy of these models has come into question, in large part because of the importance of the economic forecast to everyday activities. This research examines various forecasting techniques, with a particular emphasis on techniques used by Maurice Larrain.

The practice of economic forecasting attempts to predict business cycles and significant economic events. However, as various models are implemented and executed, they are sometimes abandoned if they fail to predict an event which has a strong effect on the economy. These errors can be dramatic. For example, the Harvard ABC curve, which was a precursor of today's leading indicator approach, failed to predict the 1929 stock market crash and ensuing depression, and so was abandoned as a widely used tool. Labor market analysis became popular and was used during World War II to predict the postwar economy, but it too was abandoned when the depression it predicted in the post-war years did not happen. Econometric modeling, which has gained recent favor, is undergoing criticism because it failed to predict economic downturns in the 1970s (Ascher, 1978, p. 60).

There is a danger in abandoning a model simply because of dramatic errors. Models are designed to predict general behavior, not radical change. So long as this consideration is understood when the models are evaluated, the mo...

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Forecasting Techniques. (1969, December 31). In LotsofEssays.com. Retrieved 15:01, March 28, 2024, from https://www.lotsofessays.com/viewpaper/1696299.html