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Evaluating FOMC forecast ranges: an interval data approach

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  • Henning Fischer

    ()

  • Marta García-Bárzana

    ()

  • Peter Tillmann

    ()

  • Peter Winker

    ()

Abstract

The Federal Open Market Committee (FOMC) of the U.S. Federal Reserve publishes the range of members’ forecasts for key macroeconomic variables, but not the distribution of forecasts within this range. To evaluate these projections, previous papers compare the midpoint of the range with the realized outcome. This paper proposes an alternative approach to forecast evaluation that takes account of the interval nature of projections. It is shown that using the conventional Mincer–Zarnowitz approach to evaluate FOMC forecasts misses important information contained in the width of the forecast interval. This additional information plays a minor role at short forecast horizons but turns out to be of sometimes crucial importance for longer-horizon forecasts. For 18-month-ahead forecasts, the variation of members’ projections contains information that is more relevant for explaining future inflation than information embodied in the midpoint. Likewise, when longer-range forecasts for real GDP growth and the unemployment rate are considered, the width of the forecast interval comprises information over and above the one given by the midpoint alone. Copyright Springer-Verlag Berlin Heidelberg 2014

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 47 (2014)
Issue (Month): 1 (August)
Pages: 365-388

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Handle: RePEc:spr:empeco:v:47:y:2014:i:1:p:365-388

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Keywords: Forecast evaluation; Interval data; Federal Reserve; Monetary policy; C53; E37; E58;

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  1. Capistrán, Carlos, 2008. "Bias in Federal Reserve inflation forecasts: Is the Federal Reserve irrational or just cautious?," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1415-1427, November.
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  8. Gamber, Edward N. & Smith, Julie K., 2009. "Are the Fed's inflation forecasts still superior to the private sector's?," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 240-251, June.
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  12. Tillmann, Peter, 2011. "Strategic forecasting on the FOMC," European Journal of Political Economy, Elsevier, vol. 27(3), pages 547-553, September.
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  17. Blanco-Fernández, Angela & Corral, Norberto & González-Rodríguez, Gil, 2011. "Estimation of a flexible simple linear model for interval data based on set arithmetic," Computational Statistics & Data Analysis, Elsevier, vol. 55(9), pages 2568-2578, September.
  18. David H. Romer, 2009. "A New Data Set on Monetary Policy: The Economic Forecasts of Individual Members of the FOMC," NBER Working Papers 15208, National Bureau of Economic Research, Inc.
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Cited by:
  1. Bratu, Mihaela, 2013. "The Assessment And Improvement Of The Accuracy For The Forecast Intervals," Working Papers of Macroeconomic Modelling Seminar 132602, Institute for Economic Forecasting.
  2. repec:ntu:ntugeo:vol2-iss1-14-054 is not listed on IDEAS

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