The Failure to Predict the Great Recession

Morroni, Mario

doi:10.1007/978-3-319-98621-0_3

Cited by 2 publications

(2 citation statements)

References 14 publications

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“…10 ECB researchers have pointed to a neglect of various financial and uncertainty indicators and nonlinear dynamics in forecasting during the crisis, remarking that “there would appear to be a case for relying more on judgement than on the results of mechanical tools, particularly in the immediate aftermath of unprecedented events” (Kenny & Morgan, 2011, p. 5). Similarly, Potter (2011) discusses the failure of the FRBNY staff to forecast the Great Recession, attributing large forecast errors in late 2007 to a misunderstanding of the housing boom and new forms of mortgage finance, and to insufficient recognition of the feedback loop between the financial sector and the real economy. He concludes that “the unexpected events for which policymakers need to make provision have the characteristic of being the most likely unlikely bad event.”…”

Section: Recent Challengesmentioning

confidence: 99%

Central bank forecasting: A survey

Binder

Sekkel

2023

Journal of Economic Surveys

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Central banks' forecasts are important monetary policy inputs and tools for central bank communication. We survey the literature on forecasting at the Federal Reserve, European Central Bank, Bank of England, and Bank of Canada, focusing especially on recent developments. After describing these central banks' forecasting frameworks, we discuss the literature on central bank forecast evaluation and new tests of unbiasedness and efficiency. We also discuss evidence of central banks' informational advantage over private sector forecasters, which appears to have weakened over time, and how central bank forecasts may affect private sector expectations even in the absence of an informational advantage. We discuss how the Great Recession led central banks to evaluate their forecasting frameworks, how the Covid‐19 pandemic has further challenged central bank forecasting, and directions for future research.

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Section: Recent Challengesmentioning

confidence: 99%

Central bank forecasting: A survey

Binder

Sekkel

2023

Journal of Economic Surveys

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“…Both the Greenbook and SPF forecasts called for much higher industrial production growth through much of the crisis. Not surprisingly, economists were criticized for the poor performance of their forecasts (Bernanke, 2018; Del Negro & Schorfheide, 2013; Ferrara et al, 2015; Potter, 2011). Given this grim backdrop, in this paper, we develop a forecasting algorithm that improves upon parametric models during normal times as well as during rapid changes in the data such as in the 2008/2009 crisis.…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic forecasting in times of crises

Guerrón‐Quintana

Zhong

2023

J of Applied Econometrics

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We propose a parsimonious semiparametric method for macroeconomic forecasting during episodes of sudden changes. Based on the notion of clustering and similarity, we partition the time series into blocks, search for the closest blocks to the most recent block of observations, and with the matched blocks we proceed to forecast. One possibility is to compare local means across blocks, which captures the idea of matching directional movements of a series. We show that our approach does particularly well during the Great Recession and for variables such as inflation, unemployment, and real personal income. When supplemented with information from housing prices, our method consistently outperforms parametric linear, nonlinear, univariate, and multivariate alternatives for the period 1990 -2015.

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The Failure to Predict the Great Recession

Cited by 2 publications

References 14 publications

Central bank forecasting: A survey

Central bank forecasting: A survey

Macroeconomic forecasting in times of crises

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