The best of both worlds for economic predictions

Danish physicist Neils Bohr once quipped that prediction is hard, especially when it is about the future. But this is precisely what financial regulators need to do--forecasting the likely state of the economy in the future is crucial when deciding on policy levers like whether to slash or raise interest rates. However, as the world continues to become more unpredictable, forecasting has become increasingly difficult. This challenge was poignantly illustrated after the start of the 2008 Financial Crisis, when Queen Elizabeth asked a seemingly simple but pointed question to a room of researchers and economists at the London School of Economics: Why did no one see it coming? In the face of great complexity, perhaps econometrics could do with more help.