Economic forecast is a prediction of the performance of an economy, usually at a given time in the future. It is an important activity that takes place in a variety of contexts, including setting monetary and fiscal policies, state and local budgeting, and financial engineering. Economic forecasting involves the use of a wide range of techniques, such as time-series methods and macroeconomic models, to make predictions about prices, output, and other economic variables.
There are a number of different types of economic forecast methodologies, with their own advantages and disadvantages. At one extreme, the methodologies are purely statistical in nature, employing historical empirical regularities that can be discovered by observing the behavior of a variable over time as a sequence of observations, known as a time series. This approach is often employed when the person making the forecast lacks a good understanding of why the variable behaves in the way that it does, and/or when the time available for attempting a more detailed study of the subject is limited.
The general theory of economic behavior provides logical substance to these statistical approaches and may guide the choice of a particular methodology, but in practice judgment plays a large role in the making of an economic forecast. For example, when a special event is taking place that is likely to have an effect on the economy, the forecaster may judge that a standard model should be modified to take this into account.
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