tag:blogger.com,1999:blog-6837159629100463303.post3828966500332799439..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: "Out of sample" predictions with the information transfer modelJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6837159629100463303.post-18621818854791417552015-02-26T10:41:55.793-08:002015-02-26T10:41:55.793-08:00Hi M,
I actually wrote this post before I discove...Hi M,<br /><br />I actually wrote this post before I discovered that the path of NGDP-M0 is itself fairly stable for reasons that seem related to the reason why inflation predictably falls in the model above:<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/06/the-macroeconomic-partition-function.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/06/the-macroeconomic-partition-function.html</a><br /><br />That reduces the problem to just predicting NGDP or M0, which is still admittedly hard.<br /><br />I've used this to try and predict future NGDP in the US and China, for example:<br /><br /><a href="http://informationtransfereconomics.blogspot.com/2015/01/ngdp-predictions-and-new-normal.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2015/01/ngdp-predictions-and-new-normal.html</a><br /><br /><a href="http://informationtransfereconomics.blogspot.com/2014/10/can-china-successfully-slow-down.html" rel="nofollow">http://informationtransfereconomics.blogspot.com/2014/10/can-china-successfully-slow-down.html</a><br /><br />The thing is that a person living in 1970 would not have had a strong reason to include the changing information transfer index (unless they had some <a href="http://informationtransfereconomics.blogspot.com/2014/09/the-us-economy-1798-to-present.html" rel="nofollow">really long run data</a>). It is unlikely they would have come up with the model in the first place.<br /><br />As to the overall usefulness, I am not sure. Predicting the value of inflation within a 100 basis points 20 years from now even with a good estimate of future M0 won't have a huge impact on people's lives. People would care about prediciting recessions. Central banks seem interested in the shorter term, but overall I'd say it is an academic problem -- like predicting the orbits of planets. At least that is my interest in it.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-53016652345655658782015-02-26T09:37:21.263-08:002015-02-26T09:37:21.263-08:00This is extremely impressive, but is it useful? I ...This is extremely impressive, but is it useful? I find it very hard to predict the values of NGDP, M0 and P 40 years from now. You're telling me that it's enough to predict NGDP and M0 (or any other pair of them). But this is still very hard. Even with the ITM, it doesn't seem like a person living in 1970 could have predicted the current trends in NGDP, M0 and P. Do you disagree?Mnoreply@blogger.com