Imagine you are working as a forecasting analyst for the Central Bank of Kent. The governor of this central bank asks you to create a model to forecast three US macroeconomic variables: Real GDP, CPI inflation, and the Fed Funds Rate. In the governor's mind, she does not think you can create a model that beats a simple random walk model for each of these three variables. Figure 1: Plot of US Real GDP, CPI Inflation and Fed Funds Rate for the sample 1959Q22023Q3 (a) Formulate a model that you believe will produce superior forecasts for these three variables compared to the governor's random walk model. Begin by detailing your selected model specifications, taking into account the features present in the data depicted in Figure 1. For instance, can you determine approximately the true data generating process for each of the three series? Second, define your model specification in mathematical notation and outline any assumptions associated with your model. (10 marks) (b) Using the model specification defined in part (b), write a pseudo - - - code for an out of sample forecasting exercise. In your pseudo code, clearly define the o?
Imagine you are working as a forecasting analyst for the Central Bank of Kent. The governor of this central bank asks you to create a model to forecast three US macroeconomic variables: Real GDP, CPI inflation, and the Fed Funds Rate. In the governor's mind, she does not think you can create a model that beats a simple random walk model for each of these three variables. Figure 1: Plot of US Real GDP, CPI Inflation and Fed Funds Rate for the sample 1959Q22023Q3 (a) Formulate a model that you believe will produce superior forecasts for these three variables compared to the governor's random walk model. Begin by detailing your selected model specifications, taking into account the features present in the data depicted in Figure 1. For instance, can you determine approximately the true data generating process for each of the three series? Second, define your model specification in mathematical notation and outline any assumptions associated with your model. (10 marks) (b) Using the model specification defined in part (b), write a pseudo - - - code for an out of sample forecasting exercise. In your pseudo code, clearly define the o?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Imagine you are working as a forecasting analyst for the
Central Bank of Kent. The governor of this central bank
asks you to create a model to forecast three US
macroeconomic variables: Real GDP, CPI inflation, and
the Fed Funds Rate. In the governor's mind, she does
not think you can create a model that beats a simple
random walk model for each of these three variables.
Figure 1: Plot of US Real GDP, CPI Inflation and Fed
Funds Rate for the sample 1959Q22023Q3 (a)
Formulate a model that you believe will produce
superior forecasts for these three variables compared to
the governor's random walk model. Begin by detailing
your selected model specifications, taking into account
the features present in the data depicted in Figure 1.
For instance, can you determine approximately the true
data generating process for each of the three series?
Second, define your model specification in
mathematical notation and outline any assumptions
associated with your model. (10 marks) (b) Using the
model specification defined in part (b), write a pseudo
-
-
-
code for an out of sample forecasting exercise. In
your pseudo code, clearly define the o?
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