Predicting the direction of change in aggregate demand growth and its components

Hamid Baghestani ()
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Hamid Baghestani: Department of Economics, American University of Sharjah

Economics Bulletin, 2010, vol. 30, issue 1, 292-302

Abstract: In this study, we set up a framework to generate the forecasts of growth in aggregate demand and its components using real-time data. In general, these forecasts (for 1983-2008) accurately predict directional change under symmetric loss and are thus of value to a user who assigns similar cost (loss) to incorrect upward and downward predictions. Our model is simple yet useful, especially to economically-rational agents who tend to balance the predictive benefit of a forecast against the cost of gathering and processing information. We conclude by suggesting that the success of our model may have to do with the stationary behavior of the series as well as monetary policy that aims to achieve sustainable growth with stable prices.

Keywords: Macroeconomy; Monetary policy; Naïve forecast; Directional accuracy; Asymmetric or symmetric loss (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
Date: 2010-01-20
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