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The distribution of inflation forecast errors

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  • Gamber, Edward N.
  • Liebner, Jeffrey P.
  • Smith, Julie K.

Abstract

This paper investigates the cross-sectional distribution of inflation forecasts errors over the period 1984–2007. Our working hypothesis is that the Fed's movement toward greater transparency starting in the mid-1990s likely affected both the distribution of forecast errors and the location of the Fed's staff forecasts within that distribution. This paper builds on earlier work which compared Fed forecasts to the mean or median of private sector forecasts by examining the entire distribution of forecasts. By examining the entire distribution we are able to compare the forecasting record of particular forecasters against a record comprised of randomly assigned forecasts from the Survey of Professional Forecasters. Since the Fed's move toward greater transparency beginning in 1994, its forecasting record is no longer significantly better than the forecasting record comprised of randomly assigned forecasts.

Suggested Citation

  • Gamber, Edward N. & Liebner, Jeffrey P. & Smith, Julie K., 2015. "The distribution of inflation forecast errors," Journal of Policy Modeling, Elsevier, vol. 37(1), pages 47-64.
    • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:1:p:47-64
    DOI: 10.1016/j.jpolmod.2015.01.002
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    Cited by:

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    2. Goodhart, C. A. E. & Pradhan, Manoj, 2023. "A snapshot of Central Bank (two year) forecasting: a mixed picture," LSE Research Online Documents on Economics 118680, London School of Economics and Political Science, LSE Library.
    3. Meyler, Aidan, 2020. "Forecast performance in the ECB SPF: ability or chance?," Working Paper Series 2371, European Central Bank.

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    More about this item

    Keywords

    Inflation forecast errors; Greenbook forecasts; Survey of Professional Forecasters; Federal Reserve Transparency;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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