Factors influencing Federal Reserve forecasts of inflation
AbstractPurpose – This study aims to both test the asymmetric information hypothesis and explore the factors influencing the one- through four-quarter-ahead Federal Reserve inflation forecasts for 1983-2002. Design/methodology/approach – Encompassing tests are used to examine the asymmetric information hypothesis. In modeling the Federal Reserve inflation forecasts, the authors are mindful of alternative theories of inflation which emphasize such determinants as cost-push, demand-pull and inertial factors. Findings – First, the Federal Reserve inflation forecasts embody useful predictive information beyond that contained in the private forecasts. Second, with the private forecasts controlled for, the near-term Federal Reserve inflation forecasts make use of qualitative information, and the longer-term forecasts are influenced by the forecasts of growth in both unit labor costs and aggregate demand as well as the preceding-quarter inflation forecasts and monetary policy shifts. Research limitations/implications – The Federal Reserve forecasts are released to the public with a five-year lag and are currently available up to the fourth quarter of 2002. This limits the use of the most up-to-date forecasts desirable for this study. Originality/value – The factors influencing the Federal Reserve inflation forecasts are basically those emphasized publicly by monetary authorities. This finding points to the Fed's transparency and should thus help enhance its credibility with the public. Also, our results (which shed light on the predictive information in the Federal Reserve inflation forecasts not included in the private forecasts) are of value, since they can help the Fed better predict how inflation will respond to policy actions, and they can help the public form more informative inflationary expectations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 37 (2010)
Issue (Month): 2 (May)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William T. Gavin & Rachel J. Mandal, 2001.
"Forecasting inflation and growth: do private forecasts match those of policymakers?,"
Federal Reserve Bank of St. Louis, issue May, pages 11-20.
- William T. Gavin & Rachel J. Mandal, 2000. "Forecasting inflation and growth: do private forecasts match those of policymakers?," Working Papers 2000-026, Federal Reserve Bank of St. Louis.
- Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-35, September.
- Laurence Ball & Dean Croushore, 1995.
"Expectations and the Effects of Monetary Policy,"
NBER Working Papers
5344, National Bureau of Economic Research, Inc.
- Laurence Ball & Dean Croushore, 1998. "Expectations and the effects of monetary policy," Working Papers 98-13, Federal Reserve Bank of Philadelphia.
- Laurence Ball & Dean Croushore, 1995. "Expectations and the effects of monetary policy," Working Papers 95-22, Federal Reserve Bank of Philadelphia.
- Laurence Ball & Dean Croushore, 2001. "Expectations and the effects of monetary policy," Working Papers 01-12, Federal Reserve Bank of Philadelphia.
- Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
- Francis X. Diebold & Robert S. Mariano, 1994.
"Comparing Predictive Accuracy,"
NBER Technical Working Papers
0169, National Bureau of Economic Research, Inc.
- Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
- Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
- Ken Holden, 1997. "A comparison of forecasts from UK economic models and some Bayesian vector autoregressive models," Journal of Economic Studies, Emerald Group Publishing, vol. 24(4), pages 242-256, September.
- Christopher A. Sims, 2002. "The Role of Models and Probabilities in the Monetary Policy Process," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 1-62.
- Su Zhou, 2007. "The dynamic relationship between the federal funds rate and the Eurodollar rates under interest-rate targeting," Journal of Economic Studies, Emerald Group Publishing, vol. 34(2), pages 90-102, May.
- David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jade Turvey).
If references are entirely missing, you can add them using this form.