Predictable Recoveries

Xiaoming Cai, Wouter J. Den Haan and Jonathan Pinder

Economica, 2016, vol. 83, issue 330, 307-337

Abstract: A random walk with drift is a good univariate representation of US GDP. This paper shows, however, that US economic downturns have been associated with predictable short‐term recoveries and with changes in long‐term GDP forecasts that are substantially smaller than the initial drop. To detect these predictable changes, it is important to use a multivariate time series model. We discuss reasons why univariate representations can miss key characteristics of the underlying variable such as predictability, especially during recessions.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:bla:econom:v:83:y:2016:i:330:p:307-337

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