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Forecast errors before and during the Great Moderation

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Author Info

  • Gamber, Edward N.
  • Smith, Julie K.
  • Weiss, Matthew A.

Abstract

This paper investigates the change in private sector and Federal Reserve forecasts before and during the Great Moderation. We view the Great Moderation as a natural experiment. Using forecasts produced by the Survey of Professional Forecasters and the Federal Reserve (Greenbook forecasts) we investigate three questions: (1) How large was the decline in forecast errors? (2) Did forecast accuracy improve relative to the decline in volatility of growth and inflation? (3) Did forecasters respond to the Great Moderation? We find that the absolute median error as well as the cross-sectional volatility of forecast errors decreased significantly. Forecasters appeared to have narrowed the dispersion of their forecasts in response to the Great Moderation. Forecast accuracy did not improve relative to the reduction in the volatility of the economy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 63 (2011)
Issue (Month): 4 (July)
Pages: 278-289

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Handle: RePEc:eee:jebusi:v:63:y:2011:i:4:p:278-289

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Web page: http://www.elsevier.com/locate/jeconbus

Related research

Keywords: Great Moderation Survey of Professional Forecasters Forecast errors;

References

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  9. Dean Croushore & Tom Stark, 1999. "A real-time data set for macroeconomists," Working Papers 99-4, Federal Reserve Bank of Philadelphia.
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  11. Cristina Betancour & José De Gregorio & Juan Pablo Medina, 2008. "The "great moderation" and the monetary transmission mechanism in Chile," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 159-178 Bank for International Settlements.
  12. James A. Kahn & Margaret M. McConnell & Gabriel Perez-Quiros, 2002. "On the causes of the increased stability of the U.S. economy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 183-202.
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