CFDP 1706
Analyzing Macroeconomic Forecastability
Author(s):Publication Date: June 2009
Update Date: April 2010
Pages: 20
Abstract:
This paper estimates, using stochastic simulation and a multicountry macroeconometric model, the fraction of the forecast-error variance of output changes and the fraction of the forecast-error variance of inflation that are due to unpredictable asset-price changes. The results suggest that between about 25 and 37 percent of the forecast-error variance of output growth over 8 quarters is due to asset-price changes and between about 33 and 60 percent of the forecast-error variance of inflation over 8 quarters is due to asset-price changes. These estimates provide limits to the accuracy that can be expected from macroeconomic forecasting.
Keywords:
Macroeconomic forecasting, Recessions, Booms
JEL Classification Codes: E17