TY - JOUR
AU - Fair, Ray C
TI - Estimating Event Probabilities from Macroeconomic Models Using Stochastic Simulation
JF - National Bureau of Economic Research Technical Working Paper Series
VL - No. 111
PY - 1991
Y2 - August 1991
DO - 10.3386/t0111
UR - http://www.nber.org/papers/t0111
L1 - http://www.nber.org/papers/t0111.pdf
N1 - Author contact info:
Ray C. Fair
Yale University
Cowles Foundation
P.O. Box 208281
New Haven, CT 06520-8281
Tel: (203) 432-3715
Fax: (203) 432-6167
E-Mail: ray.fair@yale.edu
M1 - published as Ray C. Fair. "Estimating Event Probabilities from Macroeconometric Models Using Stochastic Simulation," in James H. Stock and Mark W. Watson, editors, "Business Cycles, Indicators, and Forecasting" University of Chicago Press (1993)
AB - This paper shows how probability questions can be answered within the context of macroeconometric models by using stochastic simulation. One can estimate, for example, the probability of a recession occurring within some fixed period in the future. Probability estimates are presented for two recessionary events and one inflationary event. An advantage of the present procedure is that the probabilities estimated from the stochastic simulation are objective in the sense that they are based on the use of estimated distributions. They are consistent with the probability structure of the model. This paper also shows that estimated probabilities can be used in the evaluation of a model, and an example of this type of evaluation is presented.
ER -