THE ACCURACY AND BIAS EVALUATION OF THE USA UNEMPLOYMENT RATE FORECASTS. METHODS TO IMPROVE THE FORECASTS ACCURACY

• Main Author: MIHAELA BRATU (SIMIONESCU)
• Format: Article
• Language: English
• Published: University of Petrosani 2012-12-01
• Series: Annals of the University of Petrosani: Economics
• Subjects: forecasts; accuracy; multi-criteria ranking; combined forecasts; Hodrick-Prescott filter; Holt-Winters smoothing exponential technique
• Online Access: http://www.upet.ro/annals/economics/pdf/2012/part4/Bratu.pdf

In this study some alternative forecasts for the unemployment rate of USA made by four institutions (International Monetary Fund (IMF), Organization for Economic Co-operation and Development (OECD), Congressional Budget Office (CBO) and Blue Chips (BC)) are evaluated regarding the accuracy and the biasness. The most accurate predictions on the forecasting horizon 201-2011 were provided by IMF, followed by OECD, CBO and BC.. These results were gotten using U1 Theil’s statistic and a new method that has not been used before in literature in this context. The multi-criteria ranking was applied to make a hierarchy of the institutions regarding the accuracy and five important accuracy measures were taken into account at the same time: mean errors, mean squared error, root mean squared error, U1 and U2 statistics of Theil. The IMF, OECD and CBO predictions are unbiased. The combined forecasts of institutions’ predictions are a suitable strategy to improve the forecasts accuracy of IMF and OECD forecasts when all combination schemes are used, but INV one is the best. The filtered and smoothed original predictions based on Hodrick-Prescott filter, respectively Holt-Winters technique are a good strategy of improving only the BC expectations. The proposed strategies to improve the accuracy do not solve the problem of biasness. The assessment and improvement of forecasts accuracy have an important contribution in growing the quality of decisional process.