Economic Theory

, Volume 47, Issue 2–3, pp 247–292

The diversity of forecasts from macroeconomic models of the US economy

Symposium

DOI: 10.1007/s00199-010-0549-7

Cite this article as:
Wieland, V. & Wolters, M.H. Econ Theory (2011) 47: 247. doi:10.1007/s00199-010-0549-7

Abstract

This paper investigates the accuracy and heterogeneity of output growth and inflation forecasts during the current and the four preceding NBER-dated US recessions. We generate forecasts from six different models of the US economy and compare them to professional forecasts from the Federal Reserve’s Greenbook and the Survey of Professional Forecasters (SPF). The model parameters and model forecasts are derived from historical data vintages so as to ensure comparability to historical forecasts by professionals. The mean model forecast comes surprisingly close to the mean SPF and Greenbook forecasts in terms of accuracy even though the models only make use of a small number of data series. Model forecasts compare particularly well to professional forecasts at a horizon of three to four quarters and during recoveries. The extent of forecast heterogeneity is similar for model and professional forecasts but varies substantially over time. Thus, forecast heterogeneity constitutes a potentially important source of economic fluctuations. While the particular reasons for diversity in professional forecasts are not observable, the diversity in model forecasts can be traced to different modeling assumptions, information sets and parameter estimates.

Keywords

Forecasting Business cycles Heterogenous beliefs Forecast distribution Model uncertainty Bayesian estimation 

JEL Classification

C53 D84 E31 E32 E37 

Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.Goethe University of Frankfurt, CEPR and CFSFrankfurt am MainGermany
  2. 2.Goethe University of FrankfurtFrankfurt am MainGermany

Personalised recommendations