COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1706 Analyzing Macroeconomic Forecastability Ray C. Fair June 2009 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. |
