Analyzing Macroeconomic Forecastability

Ray C. Fair ()
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Ray C. Fair: Cowles Foundation, Yale University, http://cowles.econ.yale.edu/faculty/fair.htm

No 1706, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: This paper examines whether recessions and booms are forecastable under the assumption that equity prices, housing prices, import prices, exports, and random shocks are not. Each of the 214 eight-quarter periods within the overall 1954:1--2009:1 period is examined regarding predictions of output growth and inflation. The results for low output growth vary by recession -- there is no common pattern. Of the eight recessions, three are forecast well. For four of the five that are not, the main reason for each is not knowing: 1) the random shocks, 2) import prices and equity prices, 3) exports, and 4) exports and equity prices. For the fifth -- the last one -- all five components are large contributors, including housing prices: a perfect storm.

Keywords: Macroeconomic forecasting; Recessions; Booms (search for similar items in EconPapers)
JEL-codes: E17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-for and nep-mac
Date: Written
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