The diversity of forecasts from macroeconomic models of the U.S. economy

Volker Wieland and Maik Wolters

No 2010/08, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: This paper investigates the accuracy and heterogeneity of output growth and inflation forecasts during the current and the four preceding NBER-dated U.S. recessions. We generate forecasts from six different models of the U.S. economy and compare them to professional forecasts from the Federal Reserve's Greenbook and the Survey of Professional Forecasters (SPF). The model parameters and model forecasts are derived from historical data vintages so as to ensure comparability to historical forecasts by professionals. The mean model forecast comes surprisingly close to the mean SPF and Greenbook forecasts in terms of accuracy even though the models only make use of a small number of data series. Model forecasts compare particularly well to professional forecasts at a horizon of three to four quarters and during recoveries. The extent of forecast heterogeneity is similar for model and professional forecasts but varies substantially over time. Thus, forecast heterogeneity constitutes a potentially important source of economic fluctuations. While the particular reasons for diversity in professional forecasts are not observable, the diversity in model forecasts can be traced to different modeling assumptions, information sets and parameter estimates.

Keywords: Forecasting; Business Cycles; Heterogeneous Beliefs; Forecast Distribution; Model Uncertainty; Bayesian Estimation (search for similar items in EconPapers)
JEL-codes: C53 D84 E31 E32 E37 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: The diversity of forecasts from macroeconomic models of the US economy (2011)
Working Paper: The Diversity of Forecasts from Macroeconomic Models of the U.S. Economy (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:201008

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