Posted by: Michael Mandel on June 28
Well, here is the documentation for two of the critiques that I mentioned (all that I have time for right now, as I’m trying to get a cover story out the door). If anyone is interested in the others, I will be glad to provide them.
Claim #1) Year ahead forecasts of short-run growth, by and large, are terrible, because macroeconomists have developed no good way of forecasting structural productivity growth.
Response: Since 1995, the year-ahead forecast error in GDP growth has averaged 1.4 percentage points (details available on request). Since growth in that period averaged 3.4% per year, the average error was about 40% of the trend. That seems pretty poor to me.
Claim #4) The estimated “natural rate of unemployment” seems to move around unpredictably.
Response: According to a 2001 paper by Douglas Staiger, James Stock, and Mark Watson, “once one accounts for the univariate trends in the unemployment rate and in productivity, the 1990s present no price or wage puzzles. Thus, the task is to explain trend movements in productivity and in unemployment.”
Translation: If we could predict productivity growth, we could predict the natural rate of unemployment. Unfortunately, macroeconomists are terrible at predicting shifts in structural productivity growth.
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