Discussion Paper

A nine variable probabilistic macroeconomic forecasting model

Abstract: This model extends one originally constructed by Robert Litterman in 1980 and used continuously since then to prepare quarterly forecasts. The current version is 3 variables larger than Littermans original model, and it now allows time variation in coefficients, predictable time variation in forecast error variance, and non-normality in disturbances. Despite this elaboration the model in a sense has just 12 parameters free to fit the behavior of 9 variables in 9 equations. The paper reports the model structure and summarizes some aspects of its recent forecasting performance.

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Discussion Paper / Institute for Empirical Macroeconomics

Publication Date: 1989

Number: 14