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Analyzing Macroeconomic Forecastability

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  • Ray Fair
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    Abstract

    This paper examines whether recessions and booms are forecastable under the assumption that equity prices, housing prices, import prices, exports, and random shocks are not. Each of the 214 eight-quarter periods within the overall 1954:1-2009:1 period is examined regarding predictions of output growth and inflation. The results for low output growth vary by recession - there is no common pattern. Of the eight recessions, three are forecast well. For four of the five that are not, the main reason for each is not knowing: 1) the random shocks, 2) import prices and equity prices, 3) exports, and 4) exports and equity prices. For the fifth - the last one - all five components are large contributors, including housing prices: a perfect storm.

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    File URL: http://icfpub.som.yale.edu/publications/2443
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    Bibliographic Info

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2443.

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    Date of creation: 01 Jun 2009
    Date of revision: 01 Oct 2009
    Handle: RePEc:ysm:somwrk:amz2443

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    Web page: http://icf.som.yale.edu/
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    Related research

    Keywords: macroeconomic forecasting; recessions; booms;

    References

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    1. Dominguez, Kathryn M & Fair, Ray C & Shapiro, Matthew D, 1988. "Forecasting the Depression: Harvard versus Yale," American Economic Review, American Economic Association, vol. 78(4), pages 595-612, September.
    2. Fair Ray C, 2005. "Policy Effects in the Post Boom U.S. Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-31, August.
    3. Marcelle Chauvet & Simon Potter, 2005. "Forecasting recessions using the yield curve," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(2), pages 77-103.
    4. Ray Fair, 2005. "Policy Effects in the Post Boom U.S. Economy," Yale School of Management Working Papers amz2629, Yale School of Management.
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    Citations

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    Cited by:
    1. Ray C. Fair, 2010. "Estimated Macroeconomic Effects of the U.S. Stimulus Bill," Cowles Foundation Discussion Papers 1756, Cowles Foundation for Research in Economics, Yale University.
    2. Ray Fair, 2009. "Has Macro Progressed?," Yale School of Management Working Papers amz2409, Yale School of Management.
    3. Ray Fair, 2009. "Possible Macroeconomic Consequences of Large Future Federal Government Deficits," Yale School of Management Working Papers amz2492, Yale School of Management.
    4. Ray C. Fair, 2009. "Possible Macroeconomic Consequences of Large Future Federal Government Deficits," Cowles Foundation Discussion Papers 1727, Cowles Foundation for Research in Economics, Yale University, revised Feb 2010.
    5. Ray C. Fair, 2009. "Has Macro Progressed?," Cowles Foundation Discussion Papers 1728, Cowles Foundation for Research in Economics, Yale University, revised Jul 2010.

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