98 posts on "Forecasting"
November 14, 2024
Why Investment‑Led Growth Lowers Chinese Living Standards
Rapid GDP growth, due in part to high rates of investment and capital accumulation, has raised China out of poverty and into middle-income status. But progress in raising living standards has lagged, as a side-effect of policies favoring investment over consumption. At present, consumption per capita stands some 40 percent below what might be expected given China’s income level. We quantify China’s consumption prospects via the lens of the neoclassical growth model. We find that shifting the country’s production mix toward consumption would raise both current and future living standards, with the latter result owing to diminishing returns to capital accumulation. Chinese policy, however, appears to be moving in the opposite direction, to reemphasize investment-led growth.
September 4, 2024
Can Professional Forecasters Predict Uncertain Times?
Economic surveys are very popular these days and for a good reason. They tell us how the folks being surveyed—professional forecasters, households, firm managers—feel about the economy. So, for instance, the New York Fed’s Survey of Consumer Expectations (SCE) website displays an inflation uncertainty measure that tells us households are more uncertain about inflation than they were pre-COVID, but a bit less than they were a few months ago. The Philadelphia Fed’s Survey of Professional Forecasters (SPF) tells us that forecasters believed last May that there was a lower risk of negative 2024 real GDP growth than there was last February. The question addressed in this post is: Does this information actually have any predictive content? Specifically, I will focus on the SPF and ask: When professional forecasters indicate that their uncertainty about future output or inflation is higher, does that mean that output or inflation is actually becoming more uncertain, in the sense that the SPF will have a harder time predicting these variables?
September 3, 2024
Are Professional Forecasters Overconfident?
The post-COVID years have not been kind to professional forecasters, whether from the private sector or policy institutions: their forecast errors for both output growth and inflation have increased dramatically relative to pre-COVID (see Figure 1 in this paper). In this two-post series we ask: First, are forecasters aware of their own fallibility? That is, when they provide measures of the uncertainty around their forecasts, are such measures on average in line with the size of the prediction errors they make? Second, can forecasters predict uncertain times? That is, does their own assessment of uncertainty change on par with changes in their forecasting ability? As we will see, the answer to both questions sheds light of whether forecasters are rational. And the answer to both questions is “no” for horizons longer than one year but is perhaps surprisingly “yes” for shorter-run forecasts.
December 15, 2023
The New York Fed DSGE Model Forecast—December 2023
This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since September 2023. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.
November 21, 2023
A Bayesian VAR Model Perspective on the Lagged Effect of Monetary Policy
Over the last few years, the U.S. economy has experienced unusually high inflation and an unprecedented pace of monetary policy tightening. While inflation has fallen recently, it remains above target, and the economy continues to expand at a robust pace. Does the resilience of the U.S. economy imply that monetary policy has been ineffectual? Or does it reflect that policy acts with “long and variable lags” and so we haven’t yet observed the full effect of the monetary tightening that has already taken place? Using a Bayesian vector autoregressive (BVAR) model, we show that economic activity has, indeed, been substantially stronger than would have been anticipated considering the rapid policy tightening. Still, the model expects a significant slowdown in 2024-25, even though short-term interest rates are forecasted to fall.
October 19, 2023
Can China Catch Up with Greece?
China’s leader Xi Jinping recently laid out the goal of reaching the per capita income of “a mid-level developed country by 2035.” Is this goal likely to be achieved? Not in our view. Continued rapid growth faces mounting headwinds from population aging and from diminishing returns to China’s investment-centered growth model. Additional impediments to growth appear to be building, including a turn toward increased state management of the economy, the crystallization of legacy credit issues in real estate and other sectors, and limits on access to key foreign technologies. Even given generous assumptions concerning future growth fundamentals, China appears likely to close only a fraction of the gap with high-income countries in the years ahead.
September 22, 2023
The New York Fed DSGE Model Forecast— September 2023
Editor's note: We have updated the "date of forecast" row in the forecast comparison table to display the correct year (2023, not 2024). (September 25, 2023, 5:01 p.m.)
This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since June 2023. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.
September 8, 2023
Reintroducing the New York Fed Staff Nowcast
“Nowcasts” of GDP growth are designed to track the economy in real time by incorporating information from an array of indicators as they are released. In April 2016, the New York Fed’s Research Group launched the New York Fed Staff Nowcast, a dynamic factor model that generated estimates of current quarter GDP growth at a weekly frequency. The onset of the COVID-19 pandemic sparked widespread economic disruptions—and unprecedented fluctuations in the economic data that flow into the Staff Nowcast. This posed significant challenges to the model, leading to the suspension of publication in September 2021. Taking advantage of recent developments in time-series econometrics, we have since developed a more robust version of the Staff Nowcast model, one that better handles data volatility. In this post, we discuss the model’s new features, present estimates of current quarter GDP growth, and evaluate how the Staff Nowcast would have performed during the pandemic period. Today’s post marks the resumption of regular New York Fed Staff Nowcast releases, to be published each Friday.
August 9, 2023
The Post‑Pandemic r*
The debate about the natural rate of interest, or r*, sometimes overlooks the point that there is an entire term structure of r* measures, with short-run estimates capturing current economic conditions and long-run estimates capturing more secular factors. The whole term structure of r* matters for policy: shorter run measures are relevant for gauging how restrictive or expansionary current policy is, while longer run measures are relevant when assessing terminal rates. This two-post series covers the evolution of both in the aftermath of the pandemic, with today’s post focusing especially on long-run measures and tomorrow’s post on short-run r*.
May 17, 2023
Look Out for Outlook‑at‑Risk
The timely characterization of risks to the economic outlook plays an important role in both economic policy and private sector decisions. In a February 2023 Liberty Street Economics post, we introduced the concept of “Outlook-at-Risk”—that is, the downside risk to real activity and two-sided risks to inflation. Today we are launching Outlook-at-Risk as a regularly updated data product, with new readings for the conditional distributions of real GDP growth, the unemployment rate, and inflation to be published each month. In this post, we use the data on conditional distributions to investigate how two-sided risks to inflation and downside risks to real activity have evolved over the current and previous five monetary policy tightening cycles.
Posted at 10:00 am in Central Bank, Financial Markets, Forecasting, Macroeconomics, Monetary Policy | Permalink
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