Indeterminacy and Forecastability

Ippei Fujiwara and Yasuo Hirose

Journal of Money, Credit and Banking, 2014, vol. 46, issue 1, 243-251

Abstract: Recent studies document the deteriorating performance of forecasting models during the Great Moderation, which conversely implies that forecastability was higher in the preceding era when the economy was unexpectedly volatile. We explain this phenomenon in the context of equilibrium indeterminacy in dynamic stochastic general equilibrium (DSGE) models. We first analytically show that a model under indeterminacy exhibits richer dynamics that can improve forecastability. Then, using a sticky‐price DSGE model, we numerically demonstrate that indeterminacy arising from passive monetary policy generates persistent dynamics that lead to superior forecastability. We also point out the possibility that forecastability under indeterminacy deteriorates when the degree of uncertainty about sunspot fluctuations is large.

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://doi.org/10.1111/jmcb.12104

Related works:
Working Paper: Indeterminacy and Forecastability (2012)
Working Paper: Indeterminacy and forecastability (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:46:y:2014:i:1:p:243-251

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().