COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1706

Analyzing Macroeconomic Forecastability

Ray C. Fair

June 2009
Updated: September 2009

This paper examines whether recessions and booms are forecastable under the assumption that equity prices, housing prices, import prices, exports, and random shocks are not. Each of the 214 eight-quarter periods within the overall 1954:1–2009:1 period is examined regarding predictions of output growth and inflation. The results for low output growth vary by recession — there is no common pattern. Of the eight recessions, three are forecast well. For four of the five that are not, the main reason for each is not knowing: 1) the random shocks, 2) import prices and equity prices, 3) exports, and 4) exports and equity prices. For the fifth — the last one — all five components are large contributors, including housing prices: a perfect storm.

Keywords: Macroeconomic forecasting, Recessions, Booms

JEL Classification: E17