TY - JOUR
T1 - A vector error-correction forecasting model of the US economy
AU - Anderson, Richard G.
AU - Hoffman, Dennis
AU - Rasche, Robert H.
PY - 2002/12
Y1 - 2002/12
N2 - 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.
AB - 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.
KW - Cointegration
KW - Forecasting
KW - Vector error-correction models
UR - http://www.scopus.com/inward/record.url?scp=0346413321&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0346413321&partnerID=8YFLogxK
U2 - 10.1016/S0164-0704(02)00067-8
DO - 10.1016/S0164-0704(02)00067-8
M3 - Article
AN - SCOPUS:0346413321
SN - 0164-0704
VL - 24
SP - 569
EP - 598
JO - Journal of Macroeconomics
JF - Journal of Macroeconomics
IS - 4
ER -