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A Defense Of The Fomc

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  • Martin Ellison
  • Thomas J. Sargent

Abstract

We defend the forecasting performance of the Federal Reserve Open Market Committee (FOMC) against the criticism of Christina and David Romer (2008, American Economic Review 98, 230–235) by assuming that the FOMC’s forecasts depict a worst‐case scenario that it uses to design decisions that are robust to misspecification of the staff’s model. We use a simple macro model and a plausible loss function to illustrate how such an interpretation of the FOMC’s forecasts can explain the findings of Romer and Romer, including the pattern of differences between FOMC forecasts and forecasts published by the staff of the Federal Reserve System in the Greenbook.

Suggested Citation

  • Martin Ellison & Thomas J. Sargent, 2012. "A Defense Of The Fomc," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1047-1065, November.
    • Handle: RePEc:wly:iecrev:v:53:y:2012:i:4:p:1047-1065
    DOI: j.1468-2354.2012.00711.x
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    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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