January 22, 2013
The nonpartisan Congressional Budget Office performed a critique of its own economic forecasts, finding its projections and inevitable errors generally in line with those of intellectual competitors in the White House and the private sector.
For more than 30 years, the budget analysts who gauge the likely cost and impact of legislation have issued their own projections on economic output, inflation, the price of Treasury bills and the state of wages and prices, all of which could affect the government’s revenue receipts.
“CBO’s forecasts generally have been comparable in quality with those of the administration and the Blue Chip consensus” of some 50 private forecasts, the agency said in a recent report. “When CBO’s projections have proved inaccurate by large margins, the errors have tended to reflect difficulties shared by other forecasters.”
Congress’s budgetary estimator differs in mission from the Office of Management and Budget and the corporate world. “CBO constructs its economic projections under the assumption that federal fiscal policy will follow current law, thereby providing a benchmark for lawmakers as they consider potential changes in the law,” the report explained. “In contrast, the administration’s forecasts assume the adoption of policies reflected in the president’s proposed budget.” Private forecasters “form their own assumptions about the future stance of federal fiscal policy, which may anticipate changes in law.”
Two-year economic growth forecasts following the 2008 recession were highest by OMB, followed by that of the Blue Chips, then CBO’s. But the self-critique found no “bias,” citing similar mean errors by competing forecasts, though CBO’s forecasts “have shown slight tendencies to overestimate future interest rates and wages and salaries.”
The areas on which projections by all specialists are most prone to error, CBO reported, are turning points in the business cycle -- the beginning and end of recessions; changes in trends in productivity; and changes in crude oil prices.”
But measuring by “root mean square error,” the agency said, forecasts by CBO, the administration and the Blue Chip consensus have been about equally accurate over two-year periods as well as over five-year periods.
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January 22, 2013