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Hamid Baghestani
''Predicting the direction of change in aggregate demand growth and its components''
( 2010, Vol. 30 No.1 )
In this study, we set up a framework to generate the forecasts of growth in aggregate demand and its components using real-time data. In general, these forecasts (for 1983-2008) accurately predict directional change under symmetric loss and are thus of value to a user who assigns similar cost (loss) to incorrect upward and downward predictions. Our model is simple yet useful, especially to economically-rational agents who tend to balance the predictive benefit of a forecast against the cost of gathering and processing information. We conclude by suggesting that the success of our model may have to do with the stationary behavior of the series as well as monetary policy that aims to achieve sustainable growth with stable prices.
Keywords: Macroeconomy, Monetary policy, Naïve forecast, Directional accuracy, Asymmetric or symmetric loss
JEL: E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data)
E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Manuscript Received : Dec 08 2009 Manuscript Accepted : Jan 20 2010

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