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?

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