Improving GDP Measurement: A Forecast Combination Perspective

S. Boragan Aruoba, Francis X. Diebold, Jeremy J. Nalewaik, Frank Schorfheide and Dongho Song , Causality, Prediction, and Specification Analysis: Recent Advances and Future Directions: Essays in Honor of Halbert L. White Jr, ed. by X. Chen and N. Swanson, Springer , 1-25 , August 2012.

Two often-divergent U.S. GDP estimates are available, a widely-used expenditure-side version GDPE, and a much less widely-used income-side version GDPI . We propose and explore a “forecast combination” approach to combining them. We then put the theory to work, producing a superior combined estimate of GDP growth for the U.S., GDPC. We compare GDPC to GDPE and GDPI , with particular attention to behavior over the business cycle. We discuss several variations and extensions.

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