Last night, I knew I was on tap to talk about Wisconsin GDP numbers today (Wisconsin Public Radio report here). I wondered what a naive forecast would imply, so I regressed first difference of log Wisconsin GDP on first difference of log US GDP and a lagged Wisconsin GDP first difference, to obtain this forecast…(red square)
Figure 1: Wisconsin GDP, latest release (black), and previous vintage (gray-red), and forecast based on previous vintage (red square) and 95% confidence interval (gray +), all in millions of Ch.2012$, SAAR. BEA, and author’s calculations.
Using the data in plotted as the gray-red line, I forecasted out-of-sample Wisconsin GDP for 2020Q2 shown as the red square. The 2020Q2 forecast error was -0.0015 (-0.15%), or 419 million Ch.2012$ SAAR — barely anything!
But the annual benchmark revisions moved upward the level of the 2018-19 GDP by about 0.8% (log terms), so it’s surprising that the forecast was actually so close. I guess it goes to show that one can forecast the outcome just right by accident.
More discussion of the specifics of the Wisconsin GDP numbers in this post.
The forecast is based on this regression, estimated over the 2005Q3-2020Q1 period. Let y be real GDP.
Δywit = -0.0016 – 0.1312Δywit-1 + 1.0710Δyust
Adj-R2=0.65, SER = 0.0047, N = 59. Significance at 5% msl using HAC robust standard errors denoted by bold face. Q-stat 8 lags, 8.451 [p-value = 0.391]
The data are here (XLSX).