Trend channels are an easy and effective way to visualize forecast error patterns. Let's compare two Germany GDP forecasters: the Joint Diagnosis and the GAER (German Annual Economic Report).
As shown in the chart below, forecast error (Actual - Forecast) for the joint Diagnosis is not improving. The trend channel lines are parallel. They are quite vulnerable to excessive optimism during economic downturns. Note the negative errors in 1975 and 2009 (i.e., these forecast were much higher than actuals).
As shown in the chart below, forecast error (Actual - Forecast) for the joint Diagnosis is not improving. The trend channel lines are parallel. They are quite vulnerable to excessive optimism during economic downturns. Note the negative errors in 1975 and 2009 (i.e., these forecast were much higher than actuals).
In contrast, forecast error is improving for the GAER. Most notably, they did not fall prey to excessive optimism during the recent economic crisis. Perhaps they learned from prior mistakes.
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