Macroeconomic forecasting concerns forecasting variables like GDP, components of GDP like consumption, investment, and imports, inflation, the unemployment rate, interest rates, the government deficit, and exchange rates. There are various forecasting methods, some purely statistical time series techniques and some using economic theory. We will consider both. Financial forecasting is more problematic, since changes in asset prices may be roughly unpredictable. We will examine topics like momentum forecasting to see if some asset prices are predictable. There will also be some lectures on time series econometrics, which is usually not covered extensively in the core economertrics courses.

Prerequisites: Two semesters of econometrics or statistics and intermediate macroeconomics. Special permission from the instructor is needed if the student has had only one semester of econometrics or statistics.

Attendance Class attendance is required, and there will be considerable class participation.

Statistical Software Many students use R, but any software is fine. A package focused on time series econometrics would be ideal, but not necessary. One possibility is the Fair-Parke program: FP Program. Class time will not be taken going over software.

Readings The main reference for much of the macroeconomics part of the course is Macroeconometric Modeling: 2018, denoted MM below. Most of the other readings will be journal articles. The following are some of the readings. More readings will be added later.

February 1, 3, 8, 10: Econometric Methodology and Tools
# Begin the first paper. Get whatever software you are going to use in control. A topic will be given if you want to use it for the first paper. If you want to use the FP program, there will be a review session on it.
# Your econometrics text---use this for review throughout the course.
# Case, Fair, and Oster, Chapter 21, "Critical Thinking About Research."
# Fair, Ray C., Predicting Presidential Elections and Other Things, Second Edition, Chapters 1 and 2.
# MM, Sections 2.1 and 2.3.

February 15, 17, 24: Autoregressive (AR) and Vector Autoregressive (VAR) Forecasting; Quasi Ex Ante Forecasting
# Your econometrics text on time series modeling.
# Fair, Ray C., and Robert J. Shiller, "Comparing Information in Forecasts from Econometric Models," The American Economic Review, June 1990, 375-389.
# Fair, Ray C., and Robert J. Shiller, "The Informational Content of Ex Ante Forecasts," The Review of Economics and Statistics, May 1989, 325-331.
# Fair, Ray C., "Information Content of DSGE Forecasts," Journal of Forecasting, 2019.

First paper due Monday, March 1

March 1, 3, 8, 10, 15, 17: Structural Macro Modeling; Macro Financial Effects
# Begin the second paper.
# Lecture 9, Lecture 9
# Lecture 14, Lecture 14
# Lecture 18, Lecture 18
# MM, Sections 1.1, 1.2, Macroeconometric Modeling: 2018.
# US Model, US Model
# Wealth effects: MM, Sections 4.2, 5.7. (Optional)
# Case, Karl E., John M. Quigley, and Robert J. Shiller, "Wealth Effects Revisited: 1975-2012", NBER Working Paper No. 18667, 2013.
# Zhou, Xia, and Christopher D. Carroll, "Dynamics of Wealth and Consumption: New and Improved Measures for U.S. States", The B.E. Journal of Macroeconomics, 2012.
# Mian, Atif, Kamalesh Rao, and Amir Sufi, "Household Balance Sheets, Consumption, and the Economic Slump", The Quarterly Journal of Economics, 2013.
# Mian, Atif, and Amir Sufi, "What Explains the 2007-2009 Drop in Employment? Econometrica, 2014.
# Fair, Ray C., Analysis of Nine U.S. Recessions and Three Expansions.

March 22: Reports by Students on the Second Paper

Second paper due Monday, March 29

March 29: Nowcasting
# Nowcasting, real time, Nowcasting real time
# Nowcasting paper, Nowcasting paper
# Koopmans, Tjalling C., Measurement Without Theory, The Review of Economics and Statistics, 1947.
# Fair, Ray C., Are Stock Returns and Output Growth Higher Under Democrats?.

One page discussion of your SP500 regression due noon, Sunday, April 4

March 31, April 5, 7: Shiller and the Stock Market, Discussion of SP500 Regression
# Begin the third paper. It can be an extension of the second paper, depending on how original the second paper was.
# Shiller, Robert J., Now the world faces two pandemics--one medical, one financial, April 1, 2020.
# Shiller, Robert J., Predictions for the Coronavirus Stock Market, April 2, 2020.
# Shiller, Robert J., Narrative Economics, American Economic Review, 2017.
# Shiller, Robert J., Bubbles, Human Judgment, and Expert Opinion, Financial Analysts Journal, 2002.
# S&P 500 data, S&P 500 data
# S&P 500 regression, S&P 500 regression
# S&P500 earnings, earnings
# S&P500 regression output, regression output
# S&P500 regression output 2, regression output 2

April 12, 14: Momentum Forecasting
# Moskowitz, Tobias J., Yao Hua Ooi, and Lasse Heje Pedersen, Time Series Momentum, Journal of Financial Economics, 2011.
# Hurst, Brian, Yao Hua Ooi, and Lasse Heje Pedersen, A Century of Evidence on Trend-Following Investing, The Journal of Portfolio Management, Fall 2017.
# AQR, You Can't Always Trend When You Want.
# Ahn, Hie Joo, and Chad Fulton, Index of Common Inflation Expectations, FEDS Notes, September 02, 2020.
# Robustness Tests: MM, Section 2.8.

Outline of your third paper and a pdf file of your lead article due Noon, Sunday, April 18

April 19, 21: Student presentations of the lead article # Goolsbee, Austan, and Chad Syverson, Fear, Lockdown, and Diversion: Comparing Drivers of Pandemic Economic Decline: 2020, NBER Working Paper 27432, June 2020.
# Jacks, David S., and Martin Stuermer, What Drives Commodity Price Booms and Busts?, Dallas Fed Working Paper 1614, November 2016.
# Lansing, Kevin J., Improving the Phillips Curve with an Interaction Variable, FRBSF Economic Letter, May 6, 2019.
# Xu, Xiaoqing Eleanor, and Hung-Gay Fung, What Moves the Mortgage-Backed Securities Market?, Real Estate Economics, 2005.

April 26, 28: Announcement Effects, Open Economy Macro

# Fair, Ray C., Shock Effects on Stocks, Bonds, and Exchange Rates, Journal of International Money and Finance, 2003.
# Fair, Ray C., Wealth Effects on World Private Saving, International Economics, 2017.
# Lecture 19, Lecture 19
# Lecture 20, Lecture 20

May 3, 5: Student presentations of the third paper

Third paper due midnight, Wednesday, May 12. Dean's excuse needed for an extension.

Data, News Items, Miscellaneous
# Macro data, data
# Data descriptions, Table A.2, pdf file
# NBER cycles, Cycles
# FP program, FP program
# Example of data mining, Gary Smith, Data Mining
# Example of survivor bias, Gary Smith, Survivor Bias
# note0203 note0203
# note0208 note0208
# note0210 note0210
# not0210 not0210