Thursday, January 8, 2015

Not bad for five parameters, take two

Here's the update of the predictions last updated here. The big story is that the monetary base isn't following my assumed counterfactual as well as it had been, which means that short term interest rates should start to be a bit higher than the predictions ... and sure enough, they seem to be on their way up.

The unemployment rate graph was always a more speculative prediction as the model only gives the "natural rate". In the original prediction, I speculated that the unemployment rate might pause (reach a metastable state) at the blue band before either rising again or sinking further.

Everything else seems to be on target:

High, but not unusually so. Note this is year-over-year, not-seasonally-adjusted core CPI.

A bit high, but following a data that was a bit low. The prediction of the mean (blue bands) remains pretty good.

High NGDP shocks plus high inflation means RGDP growth is just right.

Not bad for five parameters.

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