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Directional forecasts of GDP and inflation: a joint evaluation with an application to Federal Reserve predictions

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Many studies have undertaken separate analyses of the Fed's forecasts of real Gross Domestic Product (GDP) growth and inflation. This article presents a method for jointly evaluating the direction of change predictions of these variables. We conclude that some of the inflation forecasts, examined separately, were not valuable. However, the joint pattern of GDP and inflation projections was generally in accord with the economy's movements. '… directional forecasting … is now an increasingly popular metric for forecasting performance….' (Pesaran and Timmermann, 2004, 414)

Document Type: Research Article


Affiliations: 1: Department of Economics, George Washington University, Washington, DC 20052, USA 2: Harvard Law School, Cambridge, MA 02138, USA

Publication date: July 1, 2010

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