OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author(s).Working Papers describe preliminary results or research in progress by the author(s) and are published to stimulate discussion on a broad range of issues on which the OECD works.
This paper assesses the OECD's projections for GDP growth and inflation during the global financial crisis and recovery, focusing on lessons that can be learned. Growth was repeatedly overestimated in the projections, which failed to anticipate the extent of the slowdown and later the weak pace of the recovery. Similar errors were made by many other forecasters. At the same time, inflation was stronger than expected on average. Analysis of the growth errors shows that the OECD projections in the crisis years were larger in countries with more international trade openness and greater presence of foreign banks. In the recovery, there is little evidence that an underestimate of the impact of fiscal consolidation contributed significantly to forecast errors. Instead, the repeated conditioning assumption that the euro area crisis would stabilise or ease played an important role, with growth weaker than projected in European countries where bond spreads were higher than had been assumed. But placing these errors in a historical context illustrates that the errors were not without precedent: similar-sized errors were made in the first oil price shock of the 1970s. In response to the challenges encountered in forecasting in recent years and the lessons learnt, the OECD and other international organisations have sought to improve their forecasting techniques and procedures, to improve their ability to monitor near-term developments and to better account for international linkages and financial market developments.
The increase in housing equity withdrawal and coincident decline in aggregate savings rates in a number of countries in recent years is consistent with the consumption‐smoothing model of housing equity withdrawal. However, there are a variety of other theoretical models that purport to explain why households withdraw and inject equity. To assess the relative importance of these various theories, we use a comprehensive survey of the equity withdrawal and injection decisions of Australian households. We find support for several theories. Life cycle considerations appear to be most important, with older households accounting for the bulk of equity withdrawn. Portfolio rebalancing considerations also appear important, with financial asset accumulation the primary use of withdrawn funds. Consumption‐smoothing motives play an influential role, although primarily for smaller‐value transactions.
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