DP10815 Predictable Recoveries
|Author(s):||Xiaoming Cai, Wouter Den Haan, Jonathan Pinder|
|Publication Date:||September 2015|
|Keyword(s):||business cycles, forecasting, unit root|
|JEL(s):||C53, E32, E37|
|Programme Areas:||Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10815|
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.