A Review of the Performance of a Reduced-Form Macroeconomic Model

During the past few years, there has been increasing criticism of the forecast performance of the small reduced-form model of the economy. During the same period, several unusual economic developments led to the formulation of new hypotheses and questions concerning the reliability of old ones. This paper reviews the simulation performance of a simple reduced-form model of the U.S. economy since 1978. The purpose is to not only assess the magnitude of errors and evidence of systematic bias in that period, but also to assess the extent to which the unusual economic developments of the past several years have been responsible for such errors