Monday, May 1, 2017

Odds change as the bets pile in

The GDP Now forecast method explained.  It is a building up of bets against the final BEA release of first revision GDP. So the GDP Now system mirrors that process, and thus converts it into a betting pit, great fun all around. The BEA operates as a kind of ledger service that is time synced.  All parties need to get their bets in prior to first round release.  The time sync is not much of a bother to the sandbox, it is short, three months is short in monetary time, so the risk of time  plotters is overwhelmed by the accumulation of bets. We get a jam and release kind of herding action, mostly just fun. But the bets will almost always overwhelm the pit just prior to release, and tyhat causes the ledger price to jump, stopping the overflow and making new bets worthless.
As more monthly source data becomes available, the GDPNow forecast for a particular quarter evolves and generally becomes more accurate. That said, the forecasting error can still be substantial just prior to the “advance” GDP estimate release. It is important to emphasize that the Atlanta Fed GDPNow forecast is a model projection not subject to judgmental adjustments. It is not an official forecast of the Federal Reserve Bank of Atlanta, its president, the Federal Reserve System, or the FOMC.

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