Does the ROMC have expertise, and can it forecast?
AbstractThe primary purpose of the paper is to answer the following two questions regarding the performance of the influential Federal Open Market Committee (FOMC) of the Federal Reserve System, in comparison with the forecasts contained in the â€œGreenbooksâ€ of the professional staff of the Board of Governors: Does the FOMC have expertise, and can it forecast better than the staff? The FOMC forecasts that are analyzed in practice are non-replicable forecasts. In order to evaluate such forecasts, this paper develops a model to generate replicable FOMC forecasts, and compares the staff forecasts, non-replicable FOMC forecasts, and replicable FOMC forecasts, considers optimal forecasts and efficient estimation methods, and presents a direct test of FOMC expertise on non-replicable FOMC forecasts. The empirical analysis of Romer and Romer (2008) is re-examined to evaluate whether their criticisms of the FOMCâ€™s forecasting performance should be accepted unreservedly, or might be open to alternative interpretations.
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Bibliographic InfoPaper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 2008-33.
Date of creation: 01 Dec 2008
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forecast performance; FOMC forecast; direct test of FOMC expertise; replicable FOMC; staff forecast;
Other versions of this item:
- Philip Hans Franses & Michael McAleer & Rianne Legerstee, 2009. "Does the FOMC Have Expertise, and Can It Forecast?," CIRJE F-Series CIRJE-F-648, CIRJE, Faculty of Economics, University of Tokyo.
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