Directional forecasts of GDP and inflation: a joint evaluation with an application to Federal Reserve predictions

Abstract

Many studies have undertaken separate analyses of the Fed's forecasts of real GDP growth and inflation. This paper presents a method for jointly evaluating the direction of change predictions of these variables. We conclude that that some of the inflation forecasts, examined separately, were not valuable. However, the joint pattern of GDP and inflation projections was generally in accord with the economy's movements.

A directional analysis of Federal Reserve predictions of growth in unit labor costs and productivity

“…As can be seen, the overall accuracy rate (π All ) ranges from 73 to 81% in rows 1-4 for the forecasts of growth in unit labor costs, and from 64 to 79% in rows 5-8 for the forecasts of growth in productivity. In line with Sinclair, Stekler, and Kitzinger (2010), we utilize the chi-square test with and without Yate's continuity correction, Fisher's exact test, and the Pesaran-Timmermann (1992) test to evaluate the contingency table. 7 The first three test the null hypothesis of no association between the actual and predicted directional changes and the fourth one tests the null hypothesis of predictive failure (superscript 'a' indicates that the p-values of these tests are below 0.10).…”

“…To overcome this problem, in line with Sinclair, Stekler, and Kitzinger (2010), we have also utilized the chi-square test using Yates's continuity correction. 8.…”

Predicting gasoline prices using Michigan survey data

“…With n defined as the sample size, π All = (n 1 + n 2 ) / n is the overall directional accuracy rate; π Up = n 1 / (n 1 + n 3 ) is the proportion of correctly predicted upward moves; and π Down = n 2 / (n 2 + n 4 ) is the proportion of correctly predicted downward moves. In testing the null hypothesis of no (directional) association between the actual and predicted changes, we use Fisher's exact test and the chi-square tests with and without Yate's continuity correction (Sinclair et al, 2010). For the MA forecasts in rows 1-4, the overall accuracy rates, ranging from 0.46 to 0.56, are rather low.…”

Joint evaluation of the directional accuracy of corporate executives’ forecasts

“…Ö ller and Barot, 2000;Ashiya, 2003) of interest variables. Sinclair et al (2010) is one of the few exceptions that jointly evaluated an increase/decrease in real GDP and inflation rate 1 using 4 · 4 tables because the two variables are closely related. The current study extends the directional analysis of the 4 · 4 case by jointly evaluating both increase/decrease and acceleration/deceleration in real GDP.…”