Document Type
Discussion Paper
Publication Date
6-1-2009
CFDP Number
1706
CFDP Update Date
2010-04-01
CFDP Pages
20
Abstract
This paper estimates, using stochastic simulation and a multicountry macroeconometric model, the fraction of the forecast-error variance of output changes and the fraction of the forecast-error variance of inflation that are due to unpredictable asset-price changes. The results suggest that between about 25 and 37 percent of the forecast-error variance of output growth over 8 quarters is due to asset-price changes and between about 33 and 60 percent of the forecast-error variance of inflation over 8 quarters is due to asset-price changes. These estimates provide limits to the accuracy that can be expected from macroeconomic forecasting.
Recommended Citation
Fair, Ray C., "Analyzing Macroeconomic Forecastability" (2009). Cowles Foundation Discussion Papers. 2024.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2024