Was the Recent Downturn in US GDP Predictable?

38 Pages Posted: 16 Nov 2012 Last revised: 18 Mar 2015

See all articles by Mehmet Balcilar

Mehmet Balcilar

Eastern Mediterranean University

Rangan Gupta

University of Pretoria - Department of Economics

Anandamayee Majumdar

Arizona State University (ASU) - School of Mathematical and Statistical Sciences

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Date Written: November 29, 2013

Abstract

This paper uses small set of variables-- real GDP, the inflation rate, and the short-term interest rate -- and a rich set of models -- athoeretical (time-series) and theoretical (structural), linear and nonlinear, as well as classical and Bayesian models -- to consider whether we could have predicted the recent downturn of the US real GDP. Comparing the performance by root mean squared errors of the models to the benchmark random-walk model, the two structural (theoretical) models, especially the nonlinear model, perform well on the average across all forecast horizons in our ex-post out-of-sample forecasts, although at specific forecast horizons certain nonlinear athoeretical models perform the best. The nonlinear theoretical model also dominates in our ex-ante out-of-sample forecast of the Great Recession, suggesting that developing forward-looking, microfounded, nonlinear, dynamic-stochastic-general-equilibrium models of the economy, may prove crucial in forecasting turning points.

Keywords: Forecasting, Linear and non-linear models, Great Recession

JEL Classification: C32, E37

Suggested Citation

Balcilar, Mehmet and Gupta, Rangan and Majumdar, Anandamayee and Miller, Stephen M., Was the Recent Downturn in US GDP Predictable? (November 29, 2013). Applied Economics, Published online 16 February 2015, Available at SSRN: https://ssrn.com/abstract=2176346 or http://dx.doi.org/10.2139/ssrn.2176346

Mehmet Balcilar

Eastern Mediterranean University ( email )

Gazimagusa
Turkey

HOME PAGE: http://www.mbalcilar.net

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Anandamayee Majumdar

Arizona State University (ASU) - School of Mathematical and Statistical Sciences ( email )

Tempe, AZ 85287-1804
United States

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

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