Forecasting Techniques

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 p

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e is a common family of models that use the same variables in similar relationships. This overlapping of economists using the econometric models, and the overlap of the underlying philosophies and assumptions, has caused some critics to question whether the models do, in fact, offer distinct or independent judgments. The Keynesian models emphasize fiscal policy in the form of government expenditures to establish demand, production, employment and other categories of economic activity, and put monetary expansion to the side in consideration of its effect on economic forces (Peters, 1993, p. 21). Another criticism of econometric models is the appropriate size of models. The size of a model represents its elaborateness and intricacies, and brings up the issue of simplification versus complication, since one of the goals of forecasting is to have a model that can be understood by non-economists (most notably policy makers). Larger models, which have more variables and more equations are generally held to be more complete descriptors of an entire economic system. A majority of the earlier models were set up merely to demonstrate that such modeling not only could be done, but that these models would have real-world applications.
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Approximate Word count = 2133
Approximate Pages = 9 (250 words per page)

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