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Markets for Predicting Macro-Economic Variables – “The Signal and the Noise: The Art and Science of Prediction”, Nate Silver

November 20th, 2012 · No Comments · Economics, Policy, Prediction

One of the most basic applications might simply be markets for predicting macroeconomic variables like GDP and unemployment. There are already a variety of direct and indirect ways to bet on things like inflation, interest rates, and commodities prices, but no high-volume market for GDP exists. There could be a captive audience for these markets: common stocks have become more highly correlated with macroeconomic risks in recent years, so they could provide a means of hedging against them. These markets would also provide real-time information to policy makers, essentially serving as continuously updated forecasts of GDP. Adding options to the markets—bets on, say, whether GDP might grow by 5 percent, or decline by 2 percent—would punish overconfident forecasters and yield more reliable estimates of the uncertainties inherent in forecasting the economy.

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