Working Paper: CEPR ID: DP6594
Authors: Antonello Dagostino; Domenico Giannone; Paolo Surico
Abstract: The ability of popular statistical methods, the Federal Reserve Greenbook and the Survey of Professional Forecasters to improve upon the forecasts of inflation and real activity from naive models has declined significantly during the most recent period of greater macroeconomic stability. The decline in the predictability of inflation is associated with a break down in the predictive power of real activity, especially in the housing sector. The decline in the predictability of real activity is associated with a break down in the predictive power of the term spread.
Keywords: Fed Greenbook; Forecasting Models; Predictability; Survey of Professional Forecasts
JEL Codes: C22; C53; E37; E47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in predictability of inflation forecasts (E37) | Breakdown in predictive power of real activity measures (E32) |
| Breakdown in predictive power of real activity measures (E32) | Decline in predictability of inflation forecasts (E37) |
| Sophistication of forecasting methods (C53) | Decline in predictive accuracy (C52) |
| Macroeconomic stability (E60) | Decline in predictive accuracy of forecasting models (C53) |
| Great Moderation (E65) | Decline in predictive accuracy of forecasting models (C53) |