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Stephen:

Your analysis is interesting, but one issue that really bugs me is the use of a normal distribution in your analysis. My gut feeling is that using a normal distribution is inappropriate since the probability of of the next outcome is not independent from the previous occurrence. By the way, I have no solution to that problem.

Interesting - I arrived at an estimate of around 7-8% using two models - a short-term forecasting model based on a handful of indicators and by incorporating financial linkages based on the using the Senior Loan Officer survey into my small macro model (without the financial linkages, it was not possible to get estimates as extreme as -7%)

The most dire forecast i've seen from Bay Street was 9.5% (David Wolf) - the others are in the -5 to -6% range.

It will be interesting to compare the size of Stephen's "revision" (when the quarterly data come out) to typical US revisions.

An economist at the Bank of Canada once told me he doesn't pay a lot of attention to monthly data simply because Canada is too small. A couple of large purchases can be big enough to cause a visible blip. Less of a problem in the US, since it all smooths out.

I did a bit of arithmetic, and I was surprised at how robust the quarterly growth estimate is to the missing month March GDP number. Using the previous five monthly growth rates (rounded to a single decimal place), I calculate that the growth rate for 2009Q1 satisfies G=-6.65+1.31*gM, where gM is the March monthly growth rate. If you plug in Stephen's estimate of gM=-.12, you get a first quarter growth rate of G=-6.8% (close enough to Stephen's mean estimate of -6.9% that the difference may be rounding error). But even if you let gM range from 0% to -.5%, the first quarter growth rate of GDP only ranges from -6.65 to -7.3. So a horrible first quarter number truly is "baked in".

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