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Bad news from a forecasting model of the U.S. economy

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  • David E. Runkle
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    Abstract

    This paper describes and analyzes the 1990-92 economic forecasts of a Bayesian vector autoregression model developed by researchers at the Minneapolis Fed. The model's 1990 forecast was pretty bad - too optimistic about both inflation and economic growth, especially growth in consumption and housing. An analysis of the model's errors, however, turns up no reason to think the model is unsound. Based on data available on November 30, 1990, the model predicts weak economic conditions for the next two years: a likely recession in 1991 and moderate inflation and weak overall growth in 1991-92. The paper includes a technical appendix that describes how to statistically compare the accuracy of two sets of forecasts.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

    Volume (Year): (1990)
    Issue (Month): Fall ()
    Pages: 2-10

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    Handle: RePEc:fip:fedmqr:y:1990:i:fall:p:2-10:n:v.14no.4

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    Related research

    Keywords: Forecasting;

    References

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    1. Richard M. Todd, 1984. "Improving economic forecasting with Bayesian vector autoregression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
    2. Robert B. Litterman, 1984. "Above-average national growth in 1985 and 1986," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
    3. Newey, Whitney K, 1985. "Maximum Likelihood Specification Testing and Conditional Moment Tests," Econometrica, Econometric Society, vol. 53(5), pages 1047-70, September.
    4. Michael P. Keane & David E. Runkle, 1989. "Are economic forecasts rational?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 26-33.
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