forecasting

October 1, 2009

We defend the forecasting performance of the FOMC from the recent criticism of Christina and David Romer. Our argument is that the FOMC forecasts a worst-case scenario that it uses to design decisions that will work well enough (are robust) despite possible misspecification of its model. Because these FOMC forecasts are not predictions of what the FOMC expects to occur under its model, it is inappropriate to compare their performance in a horse race against other forecasts. Our interpretation of the FOMC as a robust policymaker can explain all the findings of the Romers and rationalises differences between FOMC forecasts and forecasts published in the Greenbook by the staff of the Federal Reserve System.

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January 1, 2009

In many research studies it is argued that it is possible to extract useful information about future economic growth from the performance of financial markets. However, this study goes further and shows that it is not only possible to use expectations derived from financial markets to forecast future economic growth, but that data about the financial system can be used for this purpose as well. The research is conducted for the Polish emerging economy on the basis of monthly data. The results suggest that, based purely on the data from the financial system, it is possible to construct reasonable measures that can, even for an emerging economy, effectively forecast future real economic activity. The outcomes are proved by two different econometric methods, namely, by a time series analysis and by a probit model. All presented models are tested in-sample and out-of-sample.

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January 1, 2005

We study the degree of output and consumption asymmetry for the ten new and fifteen original European Union members during the period 1994–2001. We establish basic stylized facts about macroeconomic asymmetry from correlations of GDP and consumption growth rates with corresponding aggregates. In addition, we determine which countries would potentially gain the most from international risk sharing within the European Union employing a utility-based measure suggested by Kalemli-Ozcan, Sørensen and Yosha (2001). We find much higher potential gains for the new members compared to those for original EU-15 countries. In particular, economies with the most volatile and counter-cyclical output growth – Czech Republic, Slovak Republic, and the three Baltic states – might benefit the most. We show that EU enlargement would not reduce the welfare of EU-15 members. If these countries move towards full risk sharing their potential welfare gains after enlargement would be virtually unchanged.

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August 1, 2005

This paper formalizes the process of updating the nowcast and forecast on output and inflation as new releases of data become available. The marginal contribution of a particular release for the value of the signal and its precision is evaluated by computing 'news' on the basis of an evolving conditioning information set. The marginal contribution is then split into what is due to timeliness of information and what is due to economic content. We find that the Federal Reserve Bank of Philadelphia surveys have a large marginal impact on the nowcast of both inflation variables and real variables and this effect is larger than that of the Employment Report. When we control for timeliness of the releases, the effect of hard data becomes sizeable. Prices and quantities affect the precision of the estimates of GDP while inflation is only affected by nominal variables and asset prices.

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October 1, 2005

We document the empirical properties of revisions to major macroeconomic variables in the United States. Our findings suggest that they do not satisfy simple desirable statistical properties. In particular, we find that these revisions do not have a zero mean, which indicates that the initial announcements by statistical agencies are biased. We also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement, which means that the initial announcements of statistical agencies are not rational forecasts. We also provide evidence that professional forecasters ignore this predictability.

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