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: 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 pre- dictable 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.

Keywords: forecasting; unit root; business cycles (search for similar items in EconPapers)
JEL-codes: C53 E32 E37 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-04-01
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Published in Economica, 1, April, 2016, 83(330), pp. 307 - 337. ISSN: 0013-0427

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:65188

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