Rationality and information advantage of the Japanese government’s construction forecasts over economic development

Abstract

This study examines the rationality of Japanese government construction forecasts between 1960 and 2019 and investigates whether the construction forecasts have an information advantage over other government’s forecasts using a recently developed test under instabilities in forecasting environments. The Japanese government construction forecasts broadly served as a reliable benchmark for most of the economic development process until the 1990s. This finding suggests that those construction forecasts contributed to effective and careful resource allocation planning in the construction and related industries and to the Japanese economy’s post-war growth. There were, however, a few irrational construction forecasts after 2000, indicating that recent construction forecasts can be improved by incorporating information from the government’s macroeconomic forecasts. The results indicate that misleading results demonstrating that all forecasts were rational were obtained if relying on the standard rationality test. These findings also suggest that governmental agencies in various countries may benefit from publishing construction forecasts because those forecasts would contribute to promoting sustainable development and growth in construction industry, not only in advanced but also developing countries.