DP6594 (Un)Predictability and Macroeconomic Stability

Author(s):	Antonello D'Agostino, Domenico Giannone, Paolo Surico
Publication Date:	December 2007
Keyword(s):	Fed Greenbook, forecasting models, predictability, Survey of Professional Forecasts
JEL(s):	C22, C53, E37, E47
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=6594

The ability of popular statistical methods, the Federal Reserve Greenbook and the Survey of Professional Forecasters to improve upon the forecasts of inflation and real activity from naive models has declined significantly during the most recent period of greater macroeconomic stability. The decline in the predictability of inflation is associated with a break down in the predictive power of real activity, especially in the housing sector. The decline in the predictability of real activity is associated with a break down in the predictive power of the term spread.