I was just reading a post on forecasts for US economic growth at Econbrowser. In it the author says: “However, even back in December, the White House forecast was slightly more optimistic than the private sector consensus”. This ‘overconfidence’ in the economy seems to have been a common theme in US public sector forecasts over recent years.
Compare this to Treasury forecasts of the New Zealand economy, which have been consistently below the private sector consensus – that is the reason why tax revenues have consistently surprised on the upside in New Zealand.
Here we have two government authorities, one which constantly overstates economic growth and one which understates economic growth. Why do you think we have this difference?
Update: My brief thoughts are below the flap:
I’m putting it down to one of two things:
- A bias associated with the economists belief of what the ‘mean’ is. In this case the economist over-reacts to short-run information when setting the ‘mean’ value for the model to revert too in the long run.
- Economists inability to recognise ‘structural shifts’ (to be fair, who the hell can observe structural shifts every time!). A structural shift can move the ‘mean’ value of some economic variable. If economists fail to recognise this, then they will will have the model reverting to the wrong point.