Projecting the medium-term : outcomes and errors for GDP growth

The focus of this paper is the evaluation of a very popular method for potential output estimation and medium-term forecasting the production function approachin terms of predictive performance. For this purpose, a forecast evaluation for the three to five years ahead predictions of GDP growth for the individual G7 countries is conducted. To carry out the forecast performance check a particular testing framework is derived that allows the computation of robust test statistics given the specific nature of the generated out-of sample forecasts. In addition, medium-term GDP projections from national and international institutions are examined and it is assessed whether these projections convey a reliable view about future economic developments and whether there is scope for improving their predictive content.