A vector error-correction forecasting model of the US economy

Richard G. Anderson, Dennis Hoffman, Robert H. Rasche

Research output: Contribution to journalArticle

23 Citations (Scopus)

Abstract

Any research or policy analysis in economics must be consistent with the time-series properties of observed macroeconomic data. Numerous previous studies reinforce the need to specify correctly a model's multivariate stochastic structure. This paper discusses in detail the specification of a vector error correction forecasting model that is anchored by long-run equilibrium relationships suggested by economic theory. The model includes six variables--the CPI, the GDP price index, real money balances (M1), the federal funds rate, the yield on long-term (10-year) government bonds, and real GDP--and four cointegrating vectors. The accuracy of VECM model forecasts for individual, univariate time series during for the 1990s is comparable to forecasts made by government agencies and private forecasters, perhaps because many forecasters share a similar implicit, long-run steady-state growth model of the economy. Judged by multivariate statistics that account for forecast-error covariance, VECM forecasts are found to be somewhat more accurate than a naïve random-walk alternative.

Original languageEnglish (US)
Pages (from-to)569-598
Number of pages30
JournalJournal of Macroeconomics
Volume24
Issue number4
DOIs
StatePublished - Dec 2002

Fingerprint

Vector error correction
US economy
Price index
Growth model
Real GDP
Long-run equilibrium
Multivariate models
Macroeconomics
Federal funds rate
Multivariate statistics
Random walk
Policy analysis
Economic theory
Forecast error
Government agencies
Economics
Government bonds

Keywords

  • Cointegration
  • Forecasting
  • Vector error-correction models

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

A vector error-correction forecasting model of the US economy. / Anderson, Richard G.; Hoffman, Dennis; Rasche, Robert H.

In: Journal of Macroeconomics, Vol. 24, No. 4, 12.2002, p. 569-598.

Research output: Contribution to journalArticle

Anderson, Richard G. ; Hoffman, Dennis ; Rasche, Robert H. / A vector error-correction forecasting model of the US economy. In: Journal of Macroeconomics. 2002 ; Vol. 24, No. 4. pp. 569-598.
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