Tuesday, September 23, 2014

Jason versus the Fed (update)

I realized I forgot to apply the same adjustment to the error I applied here [1] to the result here [2]. In the graph at the second link [2], I show the expected error in the monthly PCE inflation values -- but the FRB/US model is quarterly. So here is the same graph with the expected quarterly error:

This somewhat decreases the chance we'll fail to reject either model. The overall picture is that the Fed models (and predictions in [1] above) expect that the US economy will return to 2% PCE inflation, while the information transfer model predicts the economy will continue to undershoot that value.

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Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.