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An evaluation of the forecasts of the federal reserve: a pooled approach

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  • Fred Joutz

    (Department of Economics, George Washington University, Washington, DC, USA)

  • Michael P. Clements

    (Department of Economics, University of Warwick, Coventry, UK)

  • Herman O. Stekler

    (Department of Economics, George Washington University, Washington, DC, USA)

Abstract

The Federal Reserve Greenbook forecasts of real GDP, inflation and unemployment are analysed for the period 1974-1997. We consider whether these forecasts exhibit systematic bias, and whether efficient use is made of information, that is, whether revisions to these forecasts over time are predictable. Rather than analyse the forecasts separately for each horizon of interest, we discuss and implement methods that pool information over horizons. We conclude that there is evidence of systematic bias and of forecast smoothing of the inflation forecasts. Copyright © 2007 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 22 (2007)
Issue (Month): 1 ()
Pages: 121-136

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Handle: RePEc:jae:japmet:v:22:y:2007:i:1:p:121-136

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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. Davies, Anthony & Lahiri, Kajal, 1995. "A new framework for analyzing survey forecasts using three-dimensional panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 205-227, July.
  3. Karamouzis, N. & Lombra, R., 1988. "Federal Reserve Policy Making: An Overview And Analysis Of The Policy Process," Papers 0-88-8, Pennsylvania State - Department of Economics.
  4. 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.
  5. 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.
  6. Pesaran, M.H. & Weale, M., 2005. "Survey Expectations," Cambridge Working Papers in Economics 0536, Faculty of Economics, University of Cambridge.
  7. Evan Koenig & Sheila Dolmas & Jeremy M. Piger, 2002. "The use and abuse of 'real-time' data in economic forecasting," Working Papers 2001-015, Federal Reserve Bank of St. Louis.
  8. Jansen, Dennis W. & Kishan, Ruby Pandey, 1996. "An evaluation of federal reserve forecasting," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 89-109.
  9. William D. Nordhaus, 1985. "Forecasting Efficiency: Concepts and Applications," Cowles Foundation Discussion Papers 774, Cowles Foundation for Research in Economics, Yale University.
  10. Clements, Michael P, 1995. "Rationality and the Role of Judgement in Macroeconomic Forecasting," Economic Journal, Royal Economic Society, vol. 105(429), pages 410-20, March.
  11. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
  12. 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.
  13. Kajal Lahiri, 2005. "Analysis of Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 1093-1095.
  14. Artis, Michael J & Marcellino, Massimiliano, 1999. "Fiscal Forecasting: the Track Record of the IMF, OECD, and EC," CEPR Discussion Papers 2206, C.E.P.R. Discussion Papers.
  15. Dean Croushore & Tom Stark, 2003. "A Real-Time Data Set for Macroeconomists: Does the Data Vintage Matter?," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 605-617, August.
  16. Reifschneider, David L. & Stockton, David J. & Wilcox, David W., 1997. "Econometric models and the monetary policy process," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 1-37, December.
  17. 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.
  18. 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.
  19. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November.
  20. Jansen, Dennis W. & Kishan, Ruby P., 1999. "An Evaluation of Federal Reserve Forecasting: Reply," Journal of Macroeconomics, Elsevier, vol. 21(1), pages 189-203, January.
  21. Zellner, Arnold, 1986. "Biased predictors, rationality and the evaluation of forecasts," Economics Letters, Elsevier, vol. 21(1), pages 45-48.
  22. Karamouzis, N. & Lombra, R., 1989. "Federal Reserve Policymaking: An Overview And Analisys Of The Policy Process," Papers 8-88-5, Pennsylvania State - Department of Economics.
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Citations

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Cited by:
  1. Paul Hubert, 2009. "Informational Advantage and Influence of Communicating Central Banks," Documents de Travail de l'OFCE 2009-04, Observatoire Francais des Conjonctures Economiques (OFCE).
  2. Paul Hubert, 2010. "Monetary Policy, Imperfect Information and the Expectations Channel," Sciences Po publications info:hdl:2441/f4rshpf3v1u, Sciences Po.
  3. Dovern, Jonas & Weisser, Johannes, 2011. "Accuracy, unbiasedness and efficiency of professional macroeconomic forecasts: An empirical comparison for the G7," International Journal of Forecasting, Elsevier, vol. 27(2), pages 452-465.
  4. Tara M. Sinclair & Edward N. Gamber & H.O. Stekler & Elizabeth Reid, 2008. "Jointly Evaluating the Federal Reserve’s Forecasts of GDP Growth and Inflation," Working Papers 2008-002, The George Washington University, Department of Economics, Research Program on Forecasting, revised Mar 2011.
  5. Paul Hubert, 2009. "An Empirical Review of Federal Reserve’s Informational Advantage," Documents de Travail de l'OFCE 2009-03, Observatoire Francais des Conjonctures Economiques (OFCE).
  6. Ager, P. & Kappler, M. & Osterloh, S., 2009. "The accuracy and efficiency of the Consensus Forecasts: A further application and extension of the pooled approach," International Journal of Forecasting, Elsevier, vol. 25(1), pages 167-181.
  7. Tara Sinclair & Herman O. Stekler & Warren Carrow, 2012. "Evaluating a Vector of the Fed's Forecasts," Working Papers 2012-3, The George Washington University, Institute for International Economic Policy.
  8. Tara M. Sinclair & H.O. Stekler & Warren Carnow, 2012. "A New Approach For Evaluating Economic Forecasts," Working Papers 2012-004, The George Washington University, Department of Economics, Research Program on Forecasting.
  9. Davies, Antony, 2006. "A framework for decomposing shocks and measuring volatilities derived from multi-dimensional panel data of survey forecasts," International Journal of Forecasting, Elsevier, vol. 22(2), pages 373-393.
  10. Arai, Natsuki, 2014. "Using forecast evaluation to improve the accuracy of the Greenbook forecast," International Journal of Forecasting, Elsevier, vol. 30(1), pages 12-19.
  11. repec:spo:wpecon:info:hdl:2441/f4rshpf3v1umfa09lat09b1bg is not listed on IDEAS
  12. Kappler, Marcus, 2007. "Projecting the Medium-Term: Outcomes and Errors for GDP Growth," ZEW Discussion Papers 07-068, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  13. Peter Tillmann, 2011. "Reputation and Forecast Revisions: Evidence from the FOMC," MAGKS Papers on Economics 201128, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  14. Kajal Lahiri, 2012. "Comment on "Forecast Rationality Tests Based on Multi-Horizon Bounds" by Andrew Patton and Allan Timmermann. Journal of Business and Economic Statistics, No. 1, Vol. 30, 2012, pp.1-17," Discussion Papers 12-10, University at Albany, SUNY, Department of Economics.
  15. Deschamps, Bruno & Ioannidis, Christos, 2013. "Can rational stubbornness explain forecast biases?," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 141-151.
  16. Ullrich Heilemann & Herman Stekler, 2010. "Perspectives on Evaluating Macroeconomic Forecasts," Working Papers 2010-002, The George Washington University, Department of Economics, Research Program on Forecasting.

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