Why and how economic forecasting fails and what to do about it

by Eloi Laurent

The presentation will focus on issues facing macroeconomic forecasting models, especially their inability to catch up weak signals and emerging economic problems, chief among them systemic crises. It will review advances and setbacks since the “Lucas critique” and New Classical Macroeconomic school in the 1970s up until the spread of DSGE models among policymakers today. It will then suggest four ways to improve macroeconomic forecasting modelling to catch up weak signals: the use of subjective data; the use of inequality indicators; relying on economic history and finally advancing the so-called “ecological macroeconomics” agenda to account for emerging ecological crises.