Mankiw vs. DeLong and Krugman on the CEA’s Real GDP Forecasts in Early 2009: What Might a Time Series Econometrician Have Said?
In early 2009, the incoming Obama administration’s Council of Economic Advisers predicted real GDP would rebound strongly from recession levels. In a blog post, Greg Mankiw expressed skepticism. In their blogs, Brad DeLong and Paul Krugman sighed. Of course there would be strong growth, they maintained, because the recovery of employment would mandate it via Okun’s Law. Mankiw challenged Krugman to a bet on the issue, but there was no response. Of course we now have a good idea of the likely outcome, but I posit a hypothetical time series econometrician who, at the time of the blog entries, applies some standard forecasting methods to see whether DeLong and Krugman’s confidence was justified. The econometrician’s conclusion is that Mankiw would likely win the bet and furthermore that a rebound of any significance is unlikely. The econometrician has no idea how DeLong and Krugman could have been so confident in the CEA’s rebound forecast.