Forecasting China's economic growth and inflation |
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| Affiliation: | 1. Federal Reserve Bank of Atlanta, United States;2. Federal Reserve Bank of Atlanta, Emory University, Sichuan University (China), and NBER, United States;3. Shanghai Jiaotong University, China;1. University of Western Australia, 35 Stirling Highway, Crawley, WA 6009, Australia;2. Stanford University, 520 Galvez Mall, CERAS Building, 5th Floor, Stanford, CA 94305-3084, USA;3. Central University of Finance and Economics, 39 Xueyuan South Road, Haidian District, Beijing 100081, China;1. School of Economics, Renmin University of China, PR China;2. School of Agricultural Economics and Rural Development, Renmin University of China, PR China;1. Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China;2. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China;1. Central University of Finance and Economics, No. 39 South College Road, Haidian District, Beijing 100081, China;2. World Bank, Washington, D.C., USA |
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| Abstract: | Although macroeconomic forecasting forms an integral part of the policymaking process, there has been a serious lack of rigorous and systematic research in the evaluation of out-of-sample model-based forecasts of China's real GDP growth and CPI inflation. This paper fills this research gap by providing a replicable forecasting model that beats a host of other competing models when measured by root mean square errors, especially over long-run forecast horizons. The model is shown to be capable of predicting turning points and to be usable for policy analysis under different scenarios. We find that M2 supply, rather than interest rates, is a key variable for forecasting macroeconomic variables. Annual GDP growth for the next five years is predicted to be close to the 6.5% official target and a future GDP growth path is predicted to be of L-shape rather than U-shape. |
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