Forecasting turning points in countries' output growth rates: a response to Milton Friedman

摘要

In our past work (Zellner et al., 1991), we used variants of a simple autoregressive-leading indicator (ARLI) model and a Bayesian decision theoretic method to obtain correct forecasts in about 70% of 158 turning point forecasts for 18 industrialized countries' annual output growth rates during the period 1974-1986. IMF data for 1951-1973 were employed to estimate our models that were then employed to forecast downturns and upturns in annual growth rates for the period 1974-1986. When Milton Friedman learned of our positive results, in a personal communication he challenged us to check our methods with an extended data set. This is indeed an important challenge since it is possible that we were just "lucky" in getting the positive results reported above. Earlier, we recognized such problems in that we began our forecasting experiments with just nine countries' data and forecasted for the period 1974-1981. Later, in Zellner and Hong (1989) and in Zellner et al. (1991), we expanded the number of countries from 9 to 18 and extended the forecast period to 1974-1986 to check that the earlier positive results held up with an expanded sample of countries and data. Fortunately, results were positive and now we report such new results for 18 countries' revised data involving 211 turning point episodes during the forecast period 1974-1990.