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A vector error correction forecasting model of the U.S. economy

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

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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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1998-008.

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Date of creation: 2001
Date of revision:
Publication status: Published in Journal of Macroeconomics, December 2002, 24(4), pp. 569-98
Handle: RePEc:fip:fedlwp:1998-008
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