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Indeterminacy and Forecastability

Fujiwara, Ippei; Hirose, Yasuo

Description

Recent studies document the deteriorating performance of forecasting models during the Great Moderation, which conversely implies that forecastability was higher in the preceding era when the economy was unexpectedly volatile. We explain this phenomenon in the context of equilibrium indeterminacy in dynamic stochastic general equilibrium (DSGE) models. We first analytically show that a model under indeterminacy exhibits richer dynamics that can improve forecastability. Then, using a...[Show more]

CollectionsANU Research Publications
Date published: 2014
Type: Journal article
URI: http://hdl.handle.net/1885/68833
Source: Journal of Money, Credit and Banking
DOI: 10.1111/jmcb.12104

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