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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. 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.
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  3. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
  4. 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.
  5. Victor Zarnowitz & Phillip Braun, 1992. "Twenty-two Years of the NBER-ASA Quarterly Economic Outlook Surveys: Aspects and Comparisons of Forecasting Performance," NBER Working Papers 3965, National Bureau of Economic Research, Inc.
  6. Dean Croushore & Charles L. Evans, 2003. "Data revisions and the identification of monetary policy shocks," Working Papers 03-1, Federal Reserve Bank of Philadelphia.
  7. Jon Faust & John H. Rogers & Jonathan H. Wright, 2000. "News and noise in G-7 GDP announcements," International Finance Discussion Papers 690, Board of Governors of the Federal Reserve System (U.S.).
  8. Stephen K. McNees, 1992. "How large are economic forecast errors?," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 25-42.
  9. Joutz, Fred & Stekler, H. O., 2000. "An evaluation of the predictions of the Federal Reserve," International Journal of Forecasting, Elsevier, vol. 16(1), pages 17-38.
  10. Holden, K & Peel, D A, 1990. "On Testing for Unbiasedness and Efficiency of Forecasts," The Manchester School of Economic & Social Studies, University of Manchester, vol. 58(2), pages 120-27, June.
  11. Scotese, Carol A., 1994. "Forecast smoothing and the optimal under-utilization of information at the federal reserve," Journal of Macroeconomics, Elsevier, vol. 16(4), pages 653-670.
  12. Scott Schuh, 2001. "An evaluation of recent macroeconomic forecast errors," New England Economic Review, Federal Reserve Bank of Boston, pages 35-56.
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Citations

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Cited by:
  1. Mankiw, N. Gregory & Reis, Ricardo & Wolfers, Justin, 2003. "Disagreement about Inflation Expectations," Research Papers 1807, Stanford University, Graduate School of Business.
  2. A. Jung, 2013. "Policymakers’ Interest Rate Preferences: Recent Evidence for Three Monetary Policy Committees," International Journal of Central Banking, International Journal of Central Banking, vol. 9(3), pages 150-197, September.
  3. William T. Gavin, 2003. "Inflation targeting: why it works and how to make it work better," Working Papers 2003-027, Federal Reserve Bank of St. Louis.
  4. Paul Hubert, 2011. "Central Bank Forecasts as an Instrument of Monetary Policy," Documents de Travail de l'OFCE 2011-23, Observatoire Francais des Conjonctures Economiques (OFCE).
  5. Peter Tillmann, 2009. "The Fed’s perceived Phillips curve: Evidence from individual FOMC forecasts," MAGKS Papers on Economics 200946, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  6. Dopke, Jorg & Fritsche, Ulrich, 2006. "When do forecasters disagree? An assessment of German growth and inflation forecast dispersion," International Journal of Forecasting, Elsevier, vol. 22(1), pages 125-135.
  7. Carl Bonham & Richard Cohen & Shigeyuki Abe, 2006. "The Rationality and Heterogeneity of Survey Forecasts of the Yen-Dollar Exchange Rate: A Reexamination," Working Papers 200611, University of Hawaii at Manoa, Department of Economics.
  8. Tillmann, Peter, 2011. "Strategic forecasting on the FOMC," European Journal of Political Economy, Elsevier, vol. 27(3), pages 547-553, September.
  9. Chanont Banternghansa & Michael W. McCracken, 2009. "Forecast disagreement among FOMC members," Working Papers 2009-059, Federal Reserve Bank of St. Louis.
  10. Henning Fischer & Marta García-Bárzana & Peter Tillmann & Peter Winker, 2012. "Evaluating FOMC forecast ranges: an interval data approach," MAGKS Papers on Economics 201213, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  11. Christian Pierdzioch & Jan-Christoph Rülke & Peter Tillmann, 2013. "Using forecasts to uncover the loss function of FOMC members," MAGKS Papers on Economics 201302, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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