Predictable recoveries

Xiaoming Cai, Wouter J. Den Haan and Jonathan Pinder

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 GNPís expenditure components.

Keywords: forecasting; unit root; business cycles propagation; heterogeneous agents.choice; macroeconomics; finance; Lie symmetries (search for similar items in EconPapers)
JEL-codes: E12 E24 E32 E41 J64 J65 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2015-08-23
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86289

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