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Have economic models' forecasting performance for US output growth and inflation changed over time, and when?

  • Rossi, Barbara
  • Sekhposyan, Tatevik

We evaluate various economic models' relative performance in forecasting future US output growth and inflation on a monthly basis. Our approach takes into account the possibility that the models' relative performance can vary over time. We show that the models' relative performance have, in fact, changed dramatically over time, for both revised and real-time data, and investigate possible factors that might explain such changes. In addition, this paper establishes two empirical stylized facts. Specifically, most predictors for output growth lost their predictive ability in the mid-1970s, and became essentially useless over the last two decades. When forecasting inflation, on the other hand, fewer predictors are significant, and their predictive ability worsened significantly around the time of the Great Moderation.

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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 26 (2010)
Issue (Month): 4 (October)
Pages: 808-835

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Handle: RePEc:eee:intfor:v:26:y::i:4:p:808-835
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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  9. Rossi, Barbara & Inoue, Atsushi, 2003. "Recursive Predictability Tests for Real-Time Data," Working Papers 03-24, Duke University, Department of Economics.
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  20. Tatevik Sekhposyan & Barbara Rossi, 2009. "Has Economic ModelsĂ­ Forecasting Performance for US Output Growth and Inflation Changed Over Time, and When?," Working Papers 09-06, Duke University, Department of Economics.
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