Economics, Econometrics and Finance
4 years ago

Forecast diversity in economic models may drive economic fluctuations.

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Paper Summary

The article looks at how accurate different models are at predicting the U.S. economy's growth and inflation during recessions. Six models were compared to forecasts from the Federal Reserve and professional forecasters. Surprisingly, the model forecasts were close to the professional ones, even though they used less data. The models did especially well in predicting outcomes three to four quarters ahead and during economic recoveries. Both model and professional forecasts showed similar levels of diversity, which can impact economic fluctuations. The differences in forecasts were due to various modeling assumptions, information used, and parameter estimates.