Predictable Recoveries

Wouter Den Haan, Xiaoming Cai and Jonathan Pinder

No 10815, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Should an unexpected change in real GNP of x% lead to an x% change in the forecasts of future GNP? The answer could be no even if GNP is a random walk. We show that US economic downturns often go together with predictable short-term recoveries and with changes in long-term GNP forecasts that are substantially smaller than the initial drop. But not always! Essential for our results is that GNP forecasts are not based on a univariate time series model, which is not uncommon. Our alternative forecasts are based on a simple multivariate representation of GNP?s expenditure components.

Keywords: Business cycles; Forecasting; Unit root (search for similar items in EconPapers)
JEL-codes: C53 E32 E37 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-for and nep-mac
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