Comparing Greenbook and Reduced Form Forecasts using a Large Realtime Dataset

Jon Faust () and Jonathan Wright

No 13397, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many recent papers have found that atheoretical forecasting methods using many predictors give better predictions for key macroeconomic variables than various small-model methods. The practical relevance of these results is open to question, however, because these papers generally use ex post revised data not available to forecasters and because no comparison is made to best actual practice. We provide some evidence on both of these points using a new large dataset of vintage data synchronized with the Fed's Greenbook forecast. This dataset consists of a large number of variables, as observed at the time of each Greenbook forecast since 1979. Thus, we can compare real-time large dataset predictions to both simple univariate methods and to the Greenbook forecast. For inflation we find that univariate methods are dominated by the best atheoretical large dataset methods and that these, in turn, are dominated by Greenbook. For GDP growth, in contrast, we find that once one takes account of Greenbook's advantage in evaluating the current state of the economy, neither large dataset methods nor the Greenbook process offers much advantage over a univariate autoregressive forecast.

JEL-codes: C32 C53 E32 E37 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-cba, nep-ets, nep-for and nep-mac
Note: EFG IFM ME
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Citations: View citations in EconPapers (42)

Published as Jon Faust & Jonathan H. Wright, 2009. "Comparing Greenbook and Reduced Form Forecasts Using a Large Realtime Dataset," Journal of Business & Economic Statistics, vol 27(4), pages 468-479.

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Journal Article: Comparing Greenbook and Reduced Form Forecasts Using a Large Realtime Dataset (2009)
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