Date of Award

9-1997

Document Type

Thesis

Degree Name

Master of Science

Abstract

This thesis explores historical inflation forecasts used in the Department of Defense (DoD) Future Years Defense Program. The study examines historical DoD forecasts against experienced inflation as measured by the Gross National Product and Gross Domestic Product implicit price deflator (GNP/GDP IPD) from 1979 to 1996. This study also compares the accuracy of DoD forecasts with those made by the Congressional Budget Office (CBO) and Data Resources, Incorporated (DRI). The results regarding the performance of historical DoD inflation forecasts are mixed. Upon examining budget through five year GNP/GDP IPD forecast spans, DoD short-term results do not indicate a downward bias and DoD long-term results do indicate a downward bias. Overall DoD forecast bias was lower than the CBO and DRI which tended to overestimate inflation. Next, forecast accuracy was evaluated in which all agencies equally anticipated budget year inflation. Forecasts for later years also yielded mixed results. CBO and DRI forecasts tend to exhibit less dispersion, but DoD tends to have less bias. DRI one, two, and three year forecasts and CBO four and five year projections demonstrated the least dispersion while DoD forecast results were more dispersed. Possible explanations and implications of these findings are provided.

AFIT Designator

AFIT-GCA-LAS-97S-8

DTIC Accession Number

ADA329995

Comments

Presented to the Faculty of the Graduate School of Logistics and Acquisition Management of the Air Force Institute of Technology

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