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A vector error-correction forecasting model of the US economy

  • Anderson, Richard G.
  • Hoffman, Dennis L.
  • Rasche, Robert H.

Any research or policy analysis in economics must be consistent with the time-series properties of observed macroeconomic data. Numerous previous studies of such time series reinforce the need to specify correctly a model's multivariate stochastic structure. This paper discusses in detail the speciation of a vector error correction forecasting model that is anchored by long-run equilibrium relationships suggested by economic theory. The model includes six variables - the CPI, the implicit price deflator for GDP, real money balances (MI), the federal funds rate, the yield on long-term (10-year) government bonds, and real GDP - and four cointegrating vectors. Model forecasts during the 1990's are compared to those made by the Federal Reserve and by private forecasters.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 24 (2002)
Issue (Month): 4 (December)
Pages: 569-598

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Handle: RePEc:eee:jmacro:v:24:y:2002:i:4:p:569-598
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