Estimating Event Probabilities from Macroeconomic Models Using Stochastic Simulation / Ray C. Fair.

Format:

Book

Author/Creator:

Fair, Ray C.

Contributor:

National Bureau of Economic Research.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0111.

NBER technical working paper series no. t0111

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1991.

Summary:

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.

Notes:

Print version record

August 1991.