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Title: Predictable Recoveries

Author(s): Xiaoming Cai, Wouter Den Haan and Jonathan Pinder

Publication Date: September 2015

Keyword(s): business cycles, forecasting and unit root

Programme Area(s): Monetary Economics and Fluctuations

Abstract: Should an unexpected change in real GNP 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 predictable short-term recoveries and 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.

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Bibliographic Reference

Cai, X, Den Haan, W and Pinder, J. 2015. 'Predictable Recoveries'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10815