Analyzing Macroeconomic Forecastability
Ray Fair ()
No 1706, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University
This paper estimates, using stochastic simulation and a multicountry macroeconometric model, the fraction of the forecast-error variance of output changes and the fraction of the forecast-error variance of inflation that are due to unpredictable asset-price changes. The results suggest that between about 25 and 37 percent of the forecast-error variance of output growth over 8 quarters is due to asset-price changes and between about 33 and 60 percent of the forecast-error variance of inflation over 8 quarters is due to asset-price changes. These estimates provide limits to the accuracy that can be expected from macroeconomic forecasting.
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: 2009-06, Revised 2010-08
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Persistent link: https://EconPapers.repec.org/RePEc:cwl:cwldpp:1706
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