On predicting the stage of the business cycle

Macroeconomic forecasts are traditionally stated as point estimates. Retrospective evaluations of forecasts usually assume that the cost of a forecast error increases with the arithmetic magnitude of the error. As a result, measures such as the root-mean-square error (RSME) or the mean absolute error (MAE) are most often used to summarize forecast performance. ; An earlier version of this paper, "The Business Cycle and Economic Forecasting," was presented to the Western Economic Association in July 1986, and to the Federal Reserve System Research Committee on Business Analysis in November 1986.