ABSTRACT
The debate over the appropriate balance between individual judgment and the output of econometric models in macroeconomic forecasting has always been contentious. Even in the heyday of the large models of national economies in the 1960s, most successful forecasters used the models more for evaluating internal consistency than for making baseline projections.10 During the 1970s, the preeminence of large-scale econometric models for macroeconomic forecasting was challenged by several developments, including a return to simpler, smaller, and more transparent models and the development of more sophisticated time-series techniques. In response to the Lucas critique (Lucas, 1976), the use of models for forecasting fell for a while into almost total disrepute. Not until the mid-1980s would econometric techniques advance to the point where forecasters could conclude comfortably that they had taken adequate account of the critique (at least in the absence of a major regime change), principally by allowing expectations to be determined by and consistent with the structure of the model.
