Incorporating judgment in forecasting models in times of crisis

Abstract

This paper introduces a simple and reproducible method to modify model forecasts using expert forecasts which is useful in crisis times. The idea is to add the expert forecast as an additional observation of the dependent variable, and to extend the model with an additional explanatory variable such as the square of a deterministic trend. Next, the new model forecast is combined with the expert forecast using equal weights. We show that it works well for gross domestic product growth forecasts for 2020 for 12 countries and that it improves upon an equal-weighted combination of the original model forecast and expert forecast.