Measuring the quality of economic forecasts

Most evaluations of forecasts have hitherto been primarily based on measure of statistical accuracy. Attention is drawn to the need for concentrating instead on the forecast components bearing on managerial decisions and on the economic effects of such decisions. The method suggested highlights the changing locus of the most influential errors over various time horizons. It also takes account of the economic consequences of under-estimates and over-estimates in forecasting, as well as of the penalties of belated correcting actions. Finally, some broader implications of this approach are discussed.