Has modelsí forecasting performance for US output growth and inflation changed over time, and when?
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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- D’Agostino, Antonello & Giannone, Domenico & Surico, Paolo, 2006.
"(Un)Predictability and macroeconomic stability,"
Working Paper Series
0605, European Central Bank.
- Antonello D'Agostino & Domenico Giannone & Paolo Surico, 2005. "(Un)Predictability and Macroeconomic Stability," Macroeconomics 0510024, EconWPA.
- D'Agostino, Antonello & Giannone, Domenico & Surico, Paolo, 2007. "(Un)Predictability and Macroeconomic Stability," CEPR Discussion Papers 6594, C.E.P.R. Discussion Papers.
- D'Agostino, Antonello & Domenico, Giannone & Surico, Paolo, 2006. "(Un)Predictability and Macroeconomic Stability," Research Technical Papers 5/RT/06, Central Bank of Ireland.
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