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Has modelsí forecasting performance for US output growth and inflation changed over time, and when?

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  • Tatevik Sekhposyan
  • Barbara Rossi

Abstract

We evaluate various modelsí relative performance in forecasting future US output growth and inflation on a monthly basis. Our approach takes into account the possibility that the modelsí relative performance can be varying over time. We show that the modelsí relative performance has, in fact, changed dramatically over time, both for revised and real-time data, and investigate possible factors that might explain such changes. In addition, this paper establishes two empirical stylized facts. Namely, most predictors for output growth lost their predictive ability in the mid-1970s, and became essentially useless in the last two decades. When forecasting inflation, instead, fewer predictors are significant (among which, notably, capacity utilization and unemployment), and their predictive ability significantly worsened around the time of the Great Moderation.

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Bibliographic Info

Paper provided by Duke University, Department of Economics in its series Working Papers with number 09-02.

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Length: 26 Pages
Date of creation: 2008
Date of revision:
Handle: RePEc:duk:dukeec:08-5

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Keywords: Output Forecasts; Inflation Forecasts; Model Selection; Structural Change; Forecast Evaluation; Real-time data. Evaluation;

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  1. D’Agostino, Antonello & Giannone, Domenico & Surico, Paolo, 2006. "(Un)Predictability and macroeconomic stability," Working Paper Series 0605, European Central Bank.
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Cited by:
  1. Kai Carstensen & Klaus Wohlrabe & Christina Ziegler, 2010. "Predictive Ability of Business Cycle Indicators under Test: A Case Study for the Euro Area Industrial Production," CESifo Working Paper Series 3158, CESifo Group Munich.
  2. D'Agostino, Antonello & Gambetti, Luca & Giannone, Domenico & Giannone, Domenico, 2009. "Macroeconomic Forecasting and Structural Change," Research Technical Papers 8/RT/09, Central Bank of Ireland.
  3. Pierre Perron & Yohei Yamamoto, 2008. "Estimating and Testing Multiple Structural Changes in Models with Endogenous Regressors," Boston University - Department of Economics - Working Papers Series wp2008-017, Boston University - Department of Economics.
  4. Liebermann, Joelle, 2012. "Real-time forecasting in a data-rich environment," MPRA Paper 39452, University Library of Munich, Germany.
  5. Ana Beatriz Galv�o, 2007. "Changes in Predictive Ability with Mixed Frequency Data," Working Papers 595, Queen Mary, University of London, School of Economics and Finance.
  6. Juan Díaz Maureira & Gustavo Leyva Jiménez, 2009. "Proyección de la inflación chilena en tiempos difíciles," Monetaria, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(4), pages 491-522, octubre-d.
  7. Manzan, Sebastiano & Zerom, Dawit, 2013. "Are macroeconomic variables useful for forecasting the distribution of U.S. inflation?," International Journal of Forecasting, Elsevier, vol. 29(3), pages 469-478.
  8. Andrés Schneider, 2009. "Regímenes de flotación administrada: un enfoque de cartera," Monetaria, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(4), pages 549-584, octubre-d.
  9. Pierre Perron & Yohei Yamamoto, 2011. "Using OLS to Estimate and Test for Structural Changes in Models with Endogenous Regressors," Boston University - Department of Economics - Working Papers Series WP2011-053, Boston University - Department of Economics.
  10. Juan Carlos Pérez-Velasco Pavón, 2009. "Determinantes de la demanda por la denominación promedio de billete: el caso de México," Monetaria, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(4), pages 523-548, octubre-d.
  11. Ricardo Gimeno & José Manuel Marqués-Sevillano, 2009. "Incertidumbre y el precio del riesgo en un proceso de convergencia nominal," Monetaria, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(4), pages 451-489, octubre-d.
  12. Strauss, Jack, 2013. "Does housing drive state-level job growth? Building permits and consumer expectations forecast a state’s economic activity," Journal of Urban Economics, Elsevier, vol. 73(1), pages 77-93.

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