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Predictable Recoveries

Author

Listed:
  • Xiaoming Cai

    (Tongji University)

  • Wouter Den Haan

    (London School of Economics
    Centre for Macroeconomics (CFM)
    Centre for Economic Policy Research (CEPR))

  • Jonathan Pinder

    (London School of Economics
    Centre for Macroeconomics (CFM))

Abstract

Should an unexpected change in real GMP of x% lead to an x% change in the forecasts of future GNP? The answer could be no even if GNP is a random walk. We show that US economic downturns often go together with changes in long-term GNP forecasts that are substantially smaller than the initial drop. But not always! Essential for our results is that GNP forecasts are not based on a univariate time series model, which is not uncommon. Our alternative forecasts are based on a simple multivariate representation of GNP's expenditure components.

Suggested Citation

  • Xiaoming Cai & Wouter Den Haan & Jonathan Pinder, 2015. "Predictable Recoveries," Discussion Papers 1520, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:1520
    as

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    File URL: http://www.centreformacroeconomics.ac.uk/Discussion-Papers/2015/CFMDP2015-20-Paper.pdf
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    References listed on IDEAS

    as
    1. Wouter J. Den Haan & Steven W. Sumner & Guy M. Yamashiro, 2011. "Bank Loan Components and the Time‐varying Effects of Monetary Policy Shocks," Economica, London School of Economics and Political Science, vol. 78(312), pages 593-617, October.
    2. Olivier J. Blanchard & Jean-Paul L'Huillier & Guido Lorenzoni, 2013. "News, Noise, and Fluctuations: An Empirical Exploration," American Economic Review, American Economic Association, vol. 103(7), pages 3045-3070, December.
    3. Granger, C. W. J., 1980. "Long memory relationships and the aggregation of dynamic models," Journal of Econometrics, Elsevier, vol. 14(2), pages 227-238, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Forecasting; Unit Root; Business Cycles;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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