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FOMC forecast: is all the information in the central tendency?

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  • William T. Gavin

Abstract

Federal Reserve policymakers began reporting their economic forecasts to Congress in 1979. These forecasts are important because they indicate what the Federal Open Market Committee members think will be the likely consequence of their policies. The Fed reports both the range (high and low) of the individual policymaker’s forecasts and a truncated central tendency. The central tendency range omits outliers from both the top and the bottom of the full range. The author finds, generally, that the forecasts derived from the full range are at least as good as those derived from the central tendency and, in a few cases, significantly better.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2003)
Issue (Month): May ()
Pages: 27-46

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Handle: RePEc:fip:fedlrv:y:2003:i:may:p:27-46:n:v.85no.3

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Keywords: Federal Open Market Committee ; Forecasting;

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References

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  1. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(3), pages 253-63, July.
  2. Dean Croushore & Charles L. Evans, 2000. "Data revisions and the identification of monetary policy shocks," Working Paper Series, Federal Reserve Bank of Chicago WP-00-26, Federal Reserve Bank of Chicago.
  3. Holden, K & Peel, D A, 1990. "On Testing for Unbiasedness and Efficiency of Forecasts," The Manchester School of Economic & Social Studies, University of Manchester, University of Manchester, vol. 58(2), pages 120-27, June.
  4. Victor Zarnowitz & Phillip Braun, 1993. "Twenty-two Years of the NBER-ASA Quarterly Economic Outlook Surveys: Aspects and Comparisons of Forecasting Performance," NBER Chapters, in: Business Cycles, Indicators and Forecasting, pages 11-94 National Bureau of Economic Research, Inc.
  5. Scott Schuh, 2001. "An evaluation of recent macroeconomic forecast errors," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, pages 35-56.
  6. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
  7. Jon Faust & John H. Rogers & Jonathan H. Wright, 2000. "News and noise in G-7 GDP announcements," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 690, Board of Governors of the Federal Reserve System (U.S.).
  8. Scotese, Carol A., 1994. "Forecast smoothing and the optimal under-utilization of information at the federal reserve," Journal of Macroeconomics, Elsevier, Elsevier, vol. 16(4), pages 653-670.
  9. Stephen K. McNees, 1992. "How large are economic forecast errors?," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Jul, pages 25-42.
  10. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 429-457, June.
  11. Joutz, Fred & Stekler, H. O., 2000. "An evaluation of the predictions of the Federal Reserve," International Journal of Forecasting, Elsevier, Elsevier, vol. 16(1), pages 17-38.
  12. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
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Citations

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Cited by:
  1. Peter Tillmann, 2010. "Strategic Forecasting on the FOMC," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201017, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. N. Gregory Mankiw & Ricardo Augusto Marc Rocha Reis & Justin Wolfers, 2004. "Disagreement about Inflation Expectations," Yale School of Management Working Papers, Yale School of Management ysm391, Yale School of Management.
  3. Carl Bonham & Richard Cohen & Shigeyuki Abe, 2006. "The Rationality and Heterogeneity of Survey Forecasts of the Yen-Dollar Exchange Rate: A Reexamination," Working Papers, University of Hawaii at Manoa, Department of Economics 200611, University of Hawaii at Manoa, Department of Economics.
  4. Peter Tillmann, 2009. "The Fed’s perceived Phillips curve: Evidence from individual FOMC forecasts," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 200946, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  5. Henning Fischer & Marta García-Bárzana & Peter Tillmann & Peter Winker, 2014. "Evaluating FOMC forecast ranges: an interval data approach," Empirical Economics, Springer, Springer, vol. 47(1), pages 365-388, August.
  6. Dopke, Jorg & Fritsche, Ulrich, 2006. "When do forecasters disagree? An assessment of German growth and inflation forecast dispersion," International Journal of Forecasting, Elsevier, Elsevier, vol. 22(1), pages 125-135.
  7. Chanont Banternghansa & Michael W. McCracken, 2009. "Forecast disagreement among FOMC members," Working Papers, Federal Reserve Bank of St. Louis 2009-059, Federal Reserve Bank of St. Louis.
  8. Christian Pierdzioch & Jan-Christoph Rülke & Peter Tillmann, 2013. "Using forecasts to uncover the loss function of FOMC members," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201302, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  9. Paul Hubert, 2013. "The influence and policy signaling role of FOMC forecasts," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2013-03, Observatoire Francais des Conjonctures Economiques (OFCE).
  10. A. Jung, 2013. "Policymakers’ Interest Rate Preferences: Recent Evidence for Three Monetary Policy Committees," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 9(3), pages 150-197, September.
  11. William T. Gavin, 2003. "Inflation targeting: why it works and how to make it work better," Working Papers, Federal Reserve Bank of St. Louis 2003-027, Federal Reserve Bank of St. Louis.

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