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Predictable recoveries

Author

Listed:
  • Cai, Xiaoming
  • Den Haan, Wouter J.
  • Pinder, Jonathan

Abstract

A random walk with drift is a good univariate representation of US GDP. This paper shows, however, that US economic downturns have been associated with pre- dictable short-term recoveries and with changes in long-term GDP forecasts that are substantially smaller than the initial drop. To detect these predictable changes, it is important to use a multivariate time series model. We discuss reasons why univariate representations can miss key characteristics of the underlying variable such as predictability, especially during recessions.

Suggested Citation

  • Cai, Xiaoming & Den Haan, Wouter J. & Pinder, Jonathan, 2016. "Predictable recoveries," LSE Research Online Documents on Economics 65188, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:65188
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    File URL: https://researchonline.lse.ac.uk/id/eprint/65188/
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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