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What The Fed's Computer Model Predicts About The Future Of The US Economy
Now that our position since about 2009 that not only economic forecasting, but the economic profession in itself is just a big joke has finally gone mainstream...
Everyone is now making fun of career economists https://t.co/oxSV0eQDDg
— zerohedge (@zerohedge) May 19, 2015
@sffed paper: 2nd round of seas adjustment gets 1Q GDP to 1.8% from 0.2%. Would 3rd round get us to 3%? @pdacosta's http://t.co/NiCVxmSkTl
— Kathleen Madigan (@MadiganWSJ) May 18, 2015
... courtesy of none other than Yellen's own San Fran Fed which yesterday finally jumped the shark when it confirmed that all economists do is "goalseek" data, only they call it "double seasonal adjustments...
... the Fed is left scratching its head: if its carbon-based predictors of the future are so embarrassingly clueless and have to resort to goalseeking gimmicks to validate their "work", who is left?
The answer: computer models. Or rather, the NY Fed's dynamic stochastic general equilibrium (DSGE) model, which was introduced by the Goldman-controlled central bank branch in September 2014.
So where human economists falter (at least most of them: apparently when plugging in numbers without any bias in a model framework as the Atlanta Fed does leads to almost uncanny accuracy, but the problem is nobody in the financial arena is able to strip out their bullish bias to any and every data), why does the Fed believe a computer model will do anything better? Here is the answer (spot the circular referneces):
[T]he FRBNY DSGE model is a macroeconomic model based on modern economic theory, which characterizes the equilibrium evolution of key macroeconomic variables and identifies the underlying shocks that perturb the economy. This model is estimated using Bayesian statistical techniques, which combine prior information on model parameters with a range of data series. The DSGE model is a work in progress. We continuously strive to improve it, and augment it, so that it can provide information about a growing set of economic variables. Accordingly, the forecasts presented here are obtained using a new version of the FRBNY DSGE model discussed in September.
This version builds on the New Keynesian model with financial frictions used in Del Negro, Giannoni, and Schorfheide (2015), which has been shown to provide a reasonable explanation for the behavior of inflation in the aftermath of the Great Recession, and relatively accurate forecasts of output growth and inflation throughout recent history. Relative to the previous version of the FRBNY DSGE model, the set of observable indicators is augmented with data on consumption and investment growth, survey-based long-run inflation expectations, which provide information on the public’s perception of the central bank’s inflation objective, and the ten-year Treasury yield, in order to incorporate information about long-term rates. In addition, the model is estimated using two distinct measures of inflation—the GDP deflator and core personal consumption expenditures (PCE) inflation. Finally, the model allows for persistent shocks to both the level and the growth rate of productivity (where the latter shocks account for the possibility of secular stagnation), and uses data on the growth rate of productivity from the San Francisco Fed in order to inform these processes.
So what does this circular reasoning model (whose output steering central bank policy is based on "information on the public’s perception of the central bank’s inflation objective") say about the future:
It continues to predict a gradual recovery in economic activity ...
No surprise there: once wrong, always wrong. And when really wrong, just double, triple, quadruple and so on seasonally-adjusted the data until you get what you want....
... with a progressive but slow return of inflation toward the Federal Open Market Committee’s (FOMC) long-run target of 2 percent. This forecast remains surrounded by significant uncertainty. Please note that the DSGE model forecasts are not the official New York Fed staff forecasts, but only an input to the overall forecasting process at the Bank.
But the bottom line is that while human forecasts, while always wrong, have an interval of certainty around the predicted, if very wrong, number the Fed's DSGE model is far more nuanced.
Uncertainty around the forecasts is significant, particularly for GDP growth. The width of the 68 percent probability interval for GDP growth is 3.8 percentage points in 2015 and widens to 5.3 percentage points in 2017. The 68 percent probability intervals for inflation remain relatively tight, ranging from 0.4 percent to 1.3 percent in 2015 and from 0.4 percent to 2.1 percent in 2017.
What this means is that while carbon-based economists can and will predict the future and only after the fact blame the weather (which was accessible to everyone and quite public at the time the predictions were made), for being massively wrong, robots take the other approach: they have a ridiculous range which at least assures that they will be correct. Then again, as the chart below shows, while the Fed's DSGE model forecasts GDP of either -4% or +8% in 2017, that will hardly provide comfort to the millions of Americans caught in the latest depression if, as usually happens, the bearish prediction turns out to be accurate.
And this is what the DSGE model "predictions" look like when visualized:
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Experts believe Osama Bin Laden is either dead or alive.
Schroedinger's terrorist?
Every year there is a new genius economist...out of 10,000 the odds are that one would get things right.
Lies, damn lies, and statistics...
Garbage in
Garbage out
And does anybody REALLY believe this shit?
Some Excel sheet said that our economy did well. All praise the Excel sheet.
This computed model begs to differ with their computer model.
It was first published more than 3 years ago, and it seems to be more in line with the circumstances observed during the time since it's release than a lot of other models.
http://web.archive.org/web/20111112074159/http://www.zerohedge.com/news/...
If you want to follow the links in the above article, just copy their text and paste them into your browser.
Why not?
It has more reality going for it than 'Global Warming'!
It is a very flexible model, so designed.......................
Well he was one heck of a cat for sure.
As for the USA's e-CON-NO-mic future rests in Basel via City of Londonium.
This kind of cool looking chart is worth-nothing.
How many more pumps can the dollar take when it's petrodollar business is vanishing like night under assault from the sun.
Petrodollar, Yen and DM, the unholy trinity of currency before the Euro came in and diluted the DM's role.
Petrodollar dying. Yen Dead. DM----coming back? Big deal.
Wild PIO unfortunatelyk, none of this an accident....
With very few accidents, guitar : 21R
https://soundcloud.com/aadinaadam/sigtar-1-for-mr-chatterjee-1
http://sp.m.reuters.co.jp/news/newsBodyPI.php?url=http://jp.reuters.com/article/businessNews/idJPKBN0NW28U20150512
This is damn funny! Translated as spoken...Jeb Heng Sir ring
Here's what they really think...
FRB, 14 years planning emergency measures in preparation for the US debt default
05 ? 12 ? ? 2015 10:04 JST
WASHINGTON (Reuters) - US Federal Reserve Board (FRB) is, in preparation for the United States of default (default), that was planning the emergency response measures such as funds lending to the repayment deferred and investors, Reuters it was revealed in a letter that was obtained of.
In the letter to the US House of Representatives Financial Services Committee Jeb Heng Sir ring chairman of the (Republic) was addressed to Lou Treasury Secretary in June 2014, and is set to the FRB document summarizing these measures were studied the same members of staff.
The document, in order to minimize the disruption of the market if the payment to the US Treasury investors was delayed, that New York is planning a summary has been written.
The FRB document, setting a new repayment date of the bond, which is the default, in addition to the execution of the normal of government bonds collateral operations, proposed a "compensation payment". In addition, the Ministry of Finance is able to select the fulfill obligations, was trying to making it possible to give priority to the repayment of the bond investors.
New York declined to comment.
The United States was facing a default crisis from the political confrontation over the upper limit raising issues of federal debt in 2011 and '13. The current debt ceiling of 18 trillion 100 billion US dollars.
According to the estimates of the Congressional Research authorities, if Congress and the White House is not agreed debt ceiling hike, the government is likely to fall into a difficult situation debt repayment until October.
The hen Sir ring chairman the 11th, for the emergency response measures if it reaches the debt ceiling, was asked a letter to the Ministry of Finance and New York.
"New Keynesian model", so its flawed from its inception. Score one for all of us that know that.
both dead and alive
Double seasonal adjustments...A Common Core Keynesian Approach to Economics
ACCKAE.....kind of how it feels too, right? Well said ej...
One of the Common Core concepts regarding math is that you get credit for coming up with an answer, even if it is wrong(especially in group settings-like a Federal Reserve Meeting). So it feel's very "right", even when it's wrong.
"I trade off of these forecasts."
-Victor Neiderhoffer
Computer models=fucking up with confidence. A computer model can't 'prove' anything. Just give me a few minutes with that model and let me make a few tiny tweaks and see what it says. GIGO, garbage in, garbage out and using Keynesian magic guarantees the pile to be truly huge and reeking of decay.....
That's just......profound.
I hate to say it but I am not surprised. In fact I expect more of this to come out. Lets face it Hillary was the leader of the operation and the White house was giving the direction for her to go in. Bunch of criminals with a hoard of mindless followers backing them up.
I've done data work for quite some time, and what you'll find is that the more complicated you make the model, the more people believe it. And the reason is because most people are fucking dumb and easily tricked.
As I am always saying, if you can compute it then it must be true. Even scientists fall for it in their own area of expertise : add some hypotheses here and there so that a solution can be computed, and you have solved the problem. Never mind that these hypotheses are completely out of touch with what you're modelling and/or make the model completely meaningless, just having a computed solution means having something mathematically true, whatever this is...
Looks like a marsh mellow on a stick.Heat it up too much and it goes splat.
"He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like oh, sure he went to Harvard."
MORTIMER...!!!
santelli nailed this today. SFfed "seeking" additional "hidden" GDP (just found it in the back of the closet?) while over the past decade + they've walked down the CPI calculation to mask real inflation. just take gas prices for instance: when i was in college (1994-1999) gas fluctuated between $.99-1.09 a gallon here on the east coast. as of today, down the block from my office, its $2.75 a gallon. right before the blow-up in 2007-2008, it had been as high as $4.95 a gallon by me. so from trough-to-peak, there was roughly a 400% mark-up in the price-per-gallon and where we are today, its at a 275% mark-up over this 15-20 year period. during the bush years, i don't remember inflation being north of 4-5% according to their calculation at any given point (but i could be wrong on that, just going off memory). past 5 years, we've been anywhere between 1-3% according to their figure. so what am i getting at? the single largest commodity on the planet (oil) is the derivative and the finished product (gasoline) touches everyone from any industrialized country on the planet's wallet and this # has been so ridiculously massaged & manipulated to "fit" what & where they want interest rates to be so they can "keep the interest we owe on our debt & deficits under control". its as simple as that in my book & ill continue to say, when the intersection of the bizarro-world we've been living in crosses reality i just hope im long dead. 2007-2008 wasn't a mispricing of risk as this is; that was outright fraud. im not sure which will hurt worse but what i do know is that they are at worst cousins of each other.
i guess 1 was private sector fraud & the other public sector fraud. the japanese have shown this game can go on for quite some time. not gonna be fun when the first dress rehersal is called & im still of the belief they are in the on-deck circle.
What did their models predict in 2007?
Exactly.
Osama is proven dead because he is now in the Chicago registry, registered as a voting democrat.
Obama Bin BSing..
they might be right as long as they adjust the outcome
But... But... but Martin Armstrong says that this Octob....
That would be: 2015.75988574578899...
September 20th?
Good try, but Mart's Commodore C64 only has single-precision numbers (6 significant figures).
I love Rorschach tests.
It's Janet Yellen and a bong!
Or Audrey from Little Shop of Horrors?
See, not even Hal could see it was coming.......
All I fucking KNOW is the future of MY e-CON-omy is in shambles as UVXY no longer follows anything near it's fund objective WHATSOEVER!!!
The only way is up.
You guys just don't get it.
They will NOT let this eCONomy collapse during the Obama regime.
Even if the results is a great depression for the next 20 years. The system has to be propped up at all costs until after the 2016 election cycle ends.
You place much too much significance on the butt plug in chief. It is quite simple really. All the western central banks will be utterly and hopelessly INSOLVENT if the markets crash. They have ALL been buying equities with both hands. They are all leveraged to the gills. Do the math.
When your prediction just has to correspond to an actual result, plus or minus.
With America heading for a new recession in the autum hard to see how econ can go up from a .5%
It is not what the economy does....it is what they SAY it is doing that counts. The voters don't examine data they just accept it.
Double secret probation seasonal adjustment....it is all just a gross out comedy from here on out....
The madness can't unwind without deleveraging in a severe fashion. Say what? That is the outcome if the FED were to raise rates to somewhere decent like, 7% (LmfAO). So guess what, its more QE, more central bank participation in the market. The good ol' manufacturing shell, the United States of America, is in a fucking depression. So, the FED will not increase interest rates, and will continue debt monetization. It will continue to expand its balance sheet. Its like playing Russian roullete when the odds are 10,000 to 1, but the odds get increasingly unfavourable, until the point that a bullet passes through your head. Too late. You knew it was coming, but were hoping against math. Debt levels are sky high and rising. The only way to maintain this is with lower and lower interest rates. It will go parabolic very quickly, suddenly, but until then.... Perhaps under the old rules it would have collapsed already, back when the punch bowl was taken away, not just topped up until you died. We are in deep space now. Approaching NIRP. So, until the inevitable happens, the U.S stock market will push higher, gold and silver will get battered down. If you need yield, then by all means put some fiat into the stock market. I'd be more focused on protecting wealth, not squeezing out some risky yield because you see new highs. Personally, I can't fucking wait until this thing falls on its head.
Side note: They also found that if you replace the economic data series with termperature and tree ring data and set the model parameters to "Hot," this same model will predict global warming. Then they found that if you replace the data series with the altitude series from Germanwings Flight 9525 and set the model parameters to "Crash," the model predicts a controlled descent directly into ground thus establishing the model's forecasting utility.
"[T]he FRBNY DSGE model is a macroeconomic model based on modern economic theory, ...."
There's your issue.... lol.
Nothing more than a statistical forecast, based on variance of a number of parameters. Monte Carlo stuff.
Yawn... rookie engineers this routinely in developing products.
And, yes, I realize I've just help add to this site's stats.
In theory there is no difference between theory and practice. In practice there is.
Yogi Berra
If you don't know where you are going, you might wind up someplace else.
Yogi Berra
You've got to be very careful if you don't know where you are going, because you might not get there.
Yogi Berra
I think that covers economic forecasting as well as can be done!
Yup, that just about covers it IMHO.
As someone who worked in research for some years and did some computer modelling, the very idea that we would believe in the veracity of these things is depressing to me and/or hilarious depending on my mood.
I don't even think I can express in words the distaste I have for the intellectual kabuki theater that takes place in academic computer modelling discussions. Add to that the social pressures of having everyone's eyes on your dataset and results... people routinely skew datasets and run up against the borders of intellectual fraud, just to get papers published. I can only imagine the pressures existing in the institutions that output these numbers.
In all seriousness, these guys could not run a lemonade stand.
It's even money that these Ivy Leaguers could beat a horde of middle schoolers trying to make to band camp in some moronic Trump inspired Apprentice competition.
Might as well get a dart board out and consult the tea leaves.
Really just self appointed Soothsayers consulting the entrails.
It's all a holding action right now.
The play in the next 18 months is for Google to get Hillary in the white house.
It seems to me that they might be right and if the margin gets much larger they can't be wrong.
I remember looking at a few of the UK Bank of England inflation projections.
They had charts like this.
A 1 in 10 chance of anything, and no reason to presume they would hit the median line.
But they colored in darker to help you assume they were gonna be accurate.
Of course the always tidied up the past figures, by discarding all wrong guesses and using what actually happened in next years graph as the centerline. That way you couldnt see how far off they had been.
Congratulations, you've built a computer model that predicts nothing. The best economy here is to scrap it.
There's a 50/50 chance of either this, that or the other thing. Princeton here I come!
After reading the amazingly accurate comments further, I want to congratulate all of you on your futures at the BLS!
Been a while since I've looked at a fan chart. I'll let you all know how I feel about it just as soon as I've decided myself.