The Diversity of Forecasts from Macroeconomic Models of the U.S. Economy

This paper investigates the accuracy and heterogeneity of output growth and inflation forecasts

during the current and the four preceding NBER-dated U.S. recessions. We generate forecasts

from six different models of the U.S. economy and compare them to professional forecasts from

the Federal Reserve’s Greenbook and the Survey of Professional Forecasters (SPF). The model

parameters and model forecasts are derived from historical data vintages so as to ensure comparability

to historical forecasts by professionals. The mean model forecast comes surprisingly close

to the mean SPF and Greenbook forecasts in terms of accuracy even though the models only make

use of a small number of data series. Model forecasts compare particularly well to professional

forecasts at a horizon of three to four quarters and during recoveries. The extent of forecast heterogeneity

is similar for model and professional forecasts but varies substantially over time. Thus,

forecast heterogeneity constitutes a potentially important source of economic fluctuations. While

the particular reasons for diversity in professional forecasts are not observable, the diversity in

model forecasts can be traced to different modeling assumptions, information sets and parameter

estimates.