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Quantifying the Uncertainty of Long-Term Economic Projections: Working Paper 2022-07

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  • Congressional Budget Office

Abstract

This paper presents a practical method for assessing the uncertainty of long-term economic projections. Economic variables play a central role in the Congressional Budget Office’s analysis of federal spending and revenues, and the uncertainty of economic projections is a key driver of the uncertainty about the agency’s budget projections. The presented method quantifies the uncertainty of economic variables by using simulations from a multivariate statistical model in which variables are formulated as sums of unobserved stationary and nonstationary components. Experiments

Suggested Citation

  • Congressional Budget Office, 2022. "Quantifying the Uncertainty of Long-Term Economic Projections: Working Paper 2022-07," Working Papers 57711, Congressional Budget Office.
    • Handle: RePEc:cbo:wpaper:57711
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    File URL: https://www.cbo.gov/system/files/2022-04/57711-Uncertainty.pdf
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    References listed on IDEAS

    as
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    2. Holston, Kathryn & Laubach, Thomas & Williams, John C., 2017. "Measuring the natural rate of interest: International trends and determinants," Journal of International Economics, Elsevier, vol. 108(S1), pages 59-75.
    3. John G. Fernald, 2015. "Productivity and Potential Output before, during, and after the Great Recession," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 1-51.
    4. Kurt F. Lewis & Francisco Vazquez‐Grande, 2019. "Measuring the natural rate of interest: A note on transitory shocks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(3), pages 425-436, April.
    5. James D. Hamilton & Ethan S. Harris & Jan Hatzius & Kenneth D. West, 2016. "The Equilibrium Real Funds Rate: Past, Present, and Future," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(4), pages 660-707, November.
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    7. Congressional Budget Office, 2016. "The 2016 Long-Term Budget Outlook," Reports 51580, Congressional Budget Office.
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    10. repec:cbo:report:515801 is not listed on IDEAS
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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