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Analyzing Macroeconomic Forecastability

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  • Ray Fair

Abstract

This paper examines whether recessions and booms are forecastable under the assumption that equity prices, housing prices, import prices, exports, and random shocks are not. Each of the 214 eight-quarter periods within the overall 1954:1-2009:1 period is examined regarding predictions of output growth and inflation. The results for low output growth vary by recession - there is no common pattern. Of the eight recessions, three are forecast well. For four of the five that are not, the main reason for each is not knowing: 1) the random shocks, 2) import prices and equity prices, 3) exports, and 4) exports and equity prices. For the fifth - the last one - all five components are large contributors, including housing prices: a perfect storm.

Suggested Citation

  • Ray Fair, 2009. "Analyzing Macroeconomic Forecastability," Yale School of Management Working Papers amz2443, Yale School of Management, revised 01 Oct 2009.
  • Handle: RePEc:ysm:somwrk:amz2443
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    File URL: http://icfpub.som.yale.edu/publications/2443
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    References listed on IDEAS

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    1. Fair Ray C, 2005. "Policy Effects in the Post Boom U.S. Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-31, August.
    2. Ray Fair, 2005. "Policy Effects in the Post Boom U.S. Economy," Yale School of Management Working Papers amz2629, Yale School of Management.
    3. Marcelle Chauvet & Simon Potter, 2005. "Forecasting recessions using the yield curve," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(2), pages 77-103.
    4. Dominguez, Kathryn M & Fair, Ray C & Shapiro, Matthew D, 1988. "Forecasting the Depression: Harvard versus Yale," American Economic Review, American Economic Association, vol. 78(4), pages 595-612, September.
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    Cited by:

    1. Ray C. Fair, 2010. "Possible Macroeconomic Consequences of Large Future Federal Government Deficits," NBER Chapters,in: Tax Policy and the Economy, Volume 25, pages 89-108 National Bureau of Economic Research, Inc.
    2. Ray Fair, 2009. "Possible Macroeconomic Consequences of Large Future Federal Government Deficits," Yale School of Management Working Papers amz2492, Yale School of Management.
    3. Ray C. Fair, 2010. "Estimated Macroeconomic Effects Of The U.S. Stimulus Bill," Contemporary Economic Policy, Western Economic Association International, vol. 28(4), pages 439-452, October.
    4. Ray C. Fair, 2010. "Estimated Macroeconomic Effects of the U.S. Stimulus Bill," Cowles Foundation Discussion Papers 1756, Cowles Foundation for Research in Economics, Yale University.
    5. Ray C. Fair, 2009. "Has Macro Progressed?," Cowles Foundation Discussion Papers 1728, Cowles Foundation for Research in Economics, Yale University, revised Jul 2010.
    6. Ray Fair, 2009. "Has Macro Progressed?," Yale School of Management Working Papers amz2409, Yale School of Management.

    More about this item

    Keywords

    macroeconomic forecasting; recessions; booms;

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