The Federal Reserve just sent me the formula they use to forecast economic growth 12 months out. According to this regression analysis, we may see GDP about 2.56% next year at this time.
The formula is GDP = 1.14417 + (-0.06132 X 3mo./10yr. spread)
They use a rolling monthly average to get these co-efficients. Many thanks to Joseph G. Haubrich, Vice President - Research Dept. - Federal Reserve Bank of Cleveland.
2 comments:
Hello Deb,
I could not replicate GDP = 2.56% with the formula provided.
For Sept.:
GDP = 1.14417 + (-0.06132 X (2.65-0.15)) = 0.99%
Am I missing something?
Thank you for sharing such powerful info with us small guys!
No, you're not missing anything; I am. Thanks for the good catch. Here's the Fed's information.
http://www.clevelandfed.org/research/data/yield_curve/2010/1010/index.cfm
Overview of the Latest Yield Curve Figures
Long rates took a turn higher over the past month, adding a bit of steepness to the yield curve, as short rates stayed level. The three-month Treasury bill rate edged down to 0.15 percent from August’s (and July’s) 0.16 percent. The ten-year rate rose to 2.74 percent, up from August’s 2.61 percent, but still down from July’s 2.97. The slope rose 10 basis points to 255, up from August’s 245, down from July’s 281.
Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year, the same numbers as August and just down from July’s 1.14 percent. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year.
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