Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron.
Introduction: forecasting and policy-making
Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). But that is not a good reason to avoid forecasting: monetary policy takes time to work, so forecasts are indispensable in monetary policymaking. Instead, we need to understand how different models behave in the eye of the storm: do some cope better during breaks and crises than others? And can we make better forecasts by using information that is not normally included in economic models?