Journal Article
The Diversity of Forecasts from Macroeconomic Models of the U.S. Economy
This paper investigates the accuracy and heterogeneity of output growth and inflation forecasts
during the current and the four preceding NBER-dated U.S. recessions. We generate forecasts
from six different models of the U.S. economy and compare them to professional forecasts from
the Federal Reserve’s Greenbook and the Survey of Professional Forecasters (SPF). The model
parameters and model forecasts are derived from historical data vintages so as to ensure comparability
to historical forecasts by professionals. The mean model forecast comes surprisingly close
to the mean SPF and Greenbook forecasts in terms of accuracy even though the models only make
use of a small number of data series. Model forecasts compare particularly well to professional
forecasts at a horizon of three to four quarters and during recoveries. The extent of forecast heterogeneity
is similar for model and professional forecasts but varies substantially over time. Thus,
forecast heterogeneity constitutes a potentially important source of economic fluctuations. While
the particular reasons for diversity in professional forecasts are not observable, the diversity in
model forecasts can be traced to different modeling assumptions, information sets and parameter
estimates.
Key Words
- Bayesian Estimation
- Business cycles
- forecast distribution
- forecasting
- heterogenous beliefs
- Konjunkturzyklen
- Model Uncertainty