Happy New Year everyone!

Last January we made forecasts for 2009. It's time to check how well we did. (I'm going to do a separate post for 2010 forecasts).

I think it's roughly a tie between Stephen and Andrew. They both beat me. (I know i added a loss function to last year's post, so we could decide precisely who won, but my confidence that my loss function makes any sense is less than my willingness to do the calculations.)

CPI: Stephen 1.2%, Andrew 1.1%, Nick 0.5%, Actual 1.0%

Unemployment: Stephen 8%, Andrew 7.4%, Nick 7.5%, Actual 8.5%

USD/CAD exchange rate: Stephen $0.90, Andrew $0.86, Nick $0.90, Actual $0.95

Bank of Canada overnight rate target: Stephen, Andrew, and Nick 0.50%, Actual 0.25%

TSX: Stephen 9143.60, Andrew 11.250, Nick 10,000, Actual 11,746

Looking back on our forecasts, here's what strikes me as worthy of note:

1. The Econobloggers beat Bay Street! Brendon did a post comparing the Econobloggers' 2009 forecasts with Bay Street (except for the TSX, for which he couldn't find Bay Street forecasts). We won! We beat them on all four remaining variables!

2. Remembering the very high level of uncertainty one year ago, I am very surprised at how close reality has come to our forecasts. I have phrased it that way deliberately, rather than saying I'm surprised at how close our forecasts were to reality. It wasn't that we were great forecasters; it's that things could have turned out a lot better, or a lot worse; and they didn't. Things turned out sort of middling. I know that if I had been able to revise my own forecast, before stock markets started to recover on March 10th, I would have been a lot more pessimistic.

3. We were too optimistic on unemployment, and too pessimistic on the TSX. That's a puzzle. Why did financial markets recover more strongly than we expected, but the labour market deteriorate more than we expected?

4. We did especially well on forecasting the Bank of Canada's overnight rate target. In particular, we beat Bay Street. I think most of us, like me, felt that the Bank would have to cut to zero, or close to zero, and keep it there. But we recognised we could be wrong, and so hedged our bets and forecast 0.50%. The overnight rate target was 1.50% when we made our forecasts, and the Bank didn't cut to 0.25% until 21st April. You might even say we beat the Bank of Canada. If it had known in early January that it would need to cut to the lower bound (and that that wouldn't be enough to prevent inflation falling below target), it would have been better had it done so sooner.

But all in all, I'm just very thankful that 2009 didn't turn out a lot worse. It might well have done.