Gregory Mankiw on the Challenge of Forecasting

Gregory Mankiw, a professor of economics at Harvard and adviser to former President G. W. Bush, writes in Sunday’s New York Times — among other subjects — about the challenge of forecasting the direction of the economy.

It is fair to say that this crisis caught most economists flat-footed. In the eyes of some people, this forecasting failure is an indictment of the profession.

But that is the wrong interpretation. In one way, the current downturn is typical: Most economic slumps take us by surprise. Fluctuations in economic activity are largely unpredictable.

Yet this is no reason for embarrassment. Medical experts cannot forecast the emergence of diseases like swine flu and they can’t even be certain what paths the diseases will then take. Some things are just hard to predict. [via The NYT]

There are many external variables at play in today’s global economy. So, forecasting, besides being more art than science, involves much more than identifying and tracking trends. It involves among other things, evaluating the likelihood and impact of external/internal events that may be effectively or ineffectively aligned with strong/weak business cycles.

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