Has the Economy Become More Predictable? Changes in Greenbook Forecast Accuracy

Tulip, Peter

doi:10.1111/j.1538-4616.2009.00253.x

Cited by 59 publications

(57 citation statements)

References 30 publications

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“…On the statistical sources of the lack of forecastability during the Great Moderation, Stock and Watson (2007) note that in ‡ation dynamics have become in most part driven by transitory and thus unforecastable component. 1 Similar conclusions are reported by Tulip (2009) for the Greenbook forecasts and by Trehan (2009) for the Survey of Professional Forecasters.…”

Section: Introductionsupporting

confidence: 70%

Indeterminacy and Forecastability

Fujiwara¹,

Hirose²

2011

gwp

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Recent studies document the deteriorating performance of forecasting models during the Great Moderation. This conversely implies that forecastability is higher in the preceding era, when the economy was unexpectedly volatile. We offer an explanation for this phenomenon in the context of equilibrium indeterminacy in dynamic stochastic general equilibrium models. First, we analytically show that a model under indeterminacy exhibits richer dynamics that can improve forecastability. Then, using a prototypical New Keynesian model, we numerically demonstrate that indeterminacy due to passive monetary policy can yield superior forecastability as long as the degree of uncertainty about sunspot fluctuations is relatively small.

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Section: Introductionsupporting

confidence: 70%

Indeterminacy and Forecastability

Fujiwara¹,

Hirose²

2011

gwp

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“…This result implies that longerhorizon forecasts do not have predictive power, in the sense that they explain little if any of the variation in the historical data. 28 This striking finding-which has been documented for the SPF (Campbell, 2007), the Tealbook (Tulip, 2009), and forecasts for other large industrial economies (Vogel, 2007)-has important implications for forecasting and policy which are beyond the scope of this paper. Moreover, the apparent greater ability of forecasters to predict economic conditions at shorter horizons is to some extent an artifact of data construction rather than less uncertainty about the future, in that near-horizon forecasts of real GDP growth and CPI inflation span some quarters for which the forecaster already has published quarterly data.…”

mentioning

confidence: 84%

“…Estimates of uncertainty have changed substantially in the past. Campbell (2007) and Tulip (2009) One implication of these changes is that estimates of uncertainty would be substantially different if the sample period were shorter or longer. For example, our estimates implicitly assume that a financial crisis like that observed from 2007 to 2009 occur once every twenty years.…”

Section: Benchmark Estimates Of Uncertainty Are Sensitive To Sample Pmentioning

confidence: 99%

Gauging the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The Federal Reserve's Approach

Reifschneider

Tulip

2017

FEDS

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Since November 2007, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve has regularly published participants' qualitative assessments of the uncertainty attending their individual forecasts of real activity and inflation, expressed relative to that seen on average in the past. The benchmarks used for these historical comparisons are the average root mean squared forecast errors (RMSEs) made by various private and government forecasters over the past twenty years. This paper documents how these benchmarks are constructed and discusses some of their properties. We draw several conclusions. First, if past performance is a reasonable guide to future accuracy, considerable uncertainty surrounds all macroeconomic projections, including those of FOMC participants. Second, different forecasters have similar accuracy. Third, estimates of uncertainty about future real activity and interest rates are now considerably greater than prior to the financial crisis; in contrast, estimates of inflation accuracy have changed little. Finally, fan charts-constructed as plus-or-minus one RMSE intervals about the median FOMC forecast, under the expectation that future projection errors will be unbiased and symmetrically distributed, and that the intervals cover about 70 percent of possible outcomes-provide a reasonable approximation to future uncertainty, especially when viewed in conjunction with the FOMC's qualitative assessments. That said, an assumption of symmetry about the interest rate outlook is problematic if the expected path of the federal funds rate is expected to remain low. * Board of Governors of the Federal Reserve System, davidreifschneider@frb.gov. ^ Reserve Bank of Australia, tulipp@rba.gov.au We would like to thank

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“…Case 6 is the middle of the month following the target month being nowcasted, when the CPI is released and only the PCE price index is left to be nowcasted (in this case, backcasted). 15 The third estimate had previously been called the "first final" estimate; see Tulip (2009). At the very end of the sample, we treat the last available reading as the "truth."…”

Section: Monthly Nowcasting Performancementioning

confidence: 99%

Nowcasting U.S. Headline and Core Inflation

Knotek

Zaman

2014

Working Paper (Federal Reserve Bank of Cleveland)

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Forecasting future infl ation and nowcasting contemporaneous infl ation are diffi cult. We propose a new and parsimonious model for nowcasting headline and core infl ation in the U.S. price index for personal consumption expenditures (PCE) and the consumer price index (CPI). The model relies on relatively few variables and is tested using real-time data. The model's nowcasting accuracy improves as information accumulates over the course of a month or quarter, and it easily outperforms a variety of statistical benchmarks. In head-to-head comparisons, the model's nowcasts of CPI infl ation outperform those from the Blue Chip consensus, with especially signifi cant outperformance as the quarter goes on. The model's nowcasts for CPI and PCE infl ation also signifi cantly outperform those from the Survey of Professional Forecasters, with similar nowcasting accuracy for core infl ation measures. Across all four infl ation measures, the model's nowcasting accuracy is generally comparable to that of the Federal Reserve's Greenbook.

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Has the Economy Become More Predictable? Changes in Greenbook Forecast Accuracy

Cited by 59 publications

References 30 publications

Indeterminacy and Forecastability

Indeterminacy and Forecastability

Gauging the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The Federal Reserve's Approach

Nowcasting U.S. Headline and Core Inflation

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