Sunday, September 5, 2010

Baseline Schmaseline

In her final speech as head of the Council of Economic Advisers, Dr. Christine Romer said that she underestimated the severity of the Great Recession. Thus, while her forecast of the beneficial effects of President Obama’s stimulus was correct, it was based on the wrong baseline (state of the economy at the time she did her analysis). Had she correctly anticipated the severity of the recession, she would not have forecast unemployment remaining below 8%, instead of 9.6%.

If, on the basis of her economic expertise, she got the baseline wrong, why should we suppose she would get the forecast right? Just asking...

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