Rare Events: Limiting Their Damage Through Advances in Modeling

Rare events such as tsunamis and avalanches often result in severe losses, but such Òacts of GodÓ have been beyond the predictive ability of our forecasting models. Advances are being made, however, in forecasting rare economic events. As Gloria tells us, the key is to account for system connectedness to single out the fragile side of an economic network, to quantify the cross-linkages among financial and other institutions, and to perform stress tests that, when credible, will be able to reduce the uncertainty associated with a potentially catastrophic event. Copyright International Institute of Forecasters, 2013