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(Un)Predictability and Macroeconomic Stability

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  • D'Agostino, Antonello

    (Central Bank and Financial Services Authority of Ireland)

  • Domenico, Giannone

    (ECARES, ULB)

  • Surico, Paolo

    (Bank of England and University of Bari)

Abstract

This paper documents a new stylized fact of the greater macroeconomic stability of the U.S. economy over the last two decades. Using 131 monthly time series, three popular statistical methods and the forecasts of the Federal Reserve's Greenbook and the Survey of Professional Forecasters, we show that the ability to predict several measures of inflation and real activity declined remarkably, relative to naive forecasts, since the mid-1980s. This break down in forecast ability appears to be an inherent feature of the most recent period and thus represents a new challenge for competing explanations of the `Great Moderation'.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 5/RT/06.

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Length: 35 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:cbi:wpaper:5/rt/06

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References

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  6. D’Agostino, Antonello & Giannone, Domenico, 2006. "Comparing alternative predictors based on large-panel factor models," Working Paper Series 0680, European Central Bank.
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  8. Domenico Giannone & Lucrezia Reichlin & Luca Sala, 2005. "Monetary Policy in Real Time," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 161-224 National Bureau of Economic Research, Inc.
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