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Evaluating Real GDP Growth Forecasts in the Bank of Canada Monetary Policy Report

Author

Listed:
  • André Binette
  • Dmitri Tchebotarev
Abstract
This paper examines the quality of projections of real GDP growth taken from the Bank of Canada Monetary Policy Report (MPR) since they were first published in 1997. Over the last decade, it has become common practice among the central banking community to discuss forecast performance publicly. The assessment we undertake is on annual forecasts as well as the average prediction over the policy horizon. We find that the MPR is more accurate than a naïve forecast model and marginally superior to a consensus of professional forecasters. The accuracy of the MPR annual predictions, measured by the root-mean-square prediction error (RMSPE), improves from 1.6 to 0.6 percentage points as more data become available. On a two-year average basis, the RMSPEs are about 1.0 percentage point for forecasts made in April and October. Our results also suggest that the bias present in MPR forecasts is often not statistically significant for both annual and two-year projections. Nonetheless, we found a tendency to overpredict growth at the beginning of the forecast cycle. Finally, at the beginning of the forecast cycle, the MPR correctly predicts the sign of the change in annual real GDP growth roughly 50 per cent of the time, improving to about 75 per cent at the end of the cycle. The sign of change is correctly predicted roughly 60 per cent of the time for the two-year average prediction.

Suggested Citation

  • André Binette & Dmitri Tchebotarev, 2017. "Evaluating Real GDP Growth Forecasts in the Bank of Canada Monetary Policy Report," Staff Analytical Notes 17-21, Bank of Canada.
    • Handle: RePEc:bca:bocsan:17-21
    as

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    References listed on IDEAS

    as
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    Cited by:

    1. Carola Conces Binder & Rodrigo Sekkel, 2024. "Central bank forecasting: A survey," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 342-364, April.
    2. Thibaut Duprey & Alexander Ueberfeldt, 2018. "How to Manage Macroeconomic and Financial Stability Risks: A New Framework," Staff Analytical Notes 2018-11, Bank of Canada.
    3. Julien Champagne & Guillaume Poulin-Bellisle & Rodrigo Sekkel, 2018. "Evaluating the Bank of Canada Staff Economic Projections Using a New Database of Real-Time Data and Forecasts," Staff Working Papers 18-52, Bank of Canada.
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    More about this item

    Keywords

    Business fluctuations and cycles; Econometric and statistical methods; Monetary Policy;
    All these keywords.

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E - Macroeconomics and Monetary Economics
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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