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Analyzing Macroeconomic Forecastability

Listed author(s):
  • Ray Fair
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    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.

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    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2443.

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    Date of creation: 01 Jun 2009
    Date of revision: 01 Oct 2009
    Handle: RePEc:ysm:somwrk:amz2443
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    1. Marcelle Chauvet & Simon Potter, 2005. "Forecasting recessions using the yield curve," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(2), pages 77-103.
    2. 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.
    3. 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.
    4. Ray Fair, 2005. "Policy Effects in the Post Boom U.S. Economy," Yale School of Management Working Papers amz2629, Yale School of Management.
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