Federal reserve forecasts: asymmetry and state-dependence
AbstractWe jointly test the rationality of the Federal Reserve’s Greenbook forecasts of infiation, unemployment, and output growth using a multivariate nonseparable asymmetric loss function. We find that the forecasts are rationalizable and exhibit directional asymmetry. The degree of asymmetry depends on the phase of the business cycle: The Greenbook forecasts of output growth are too pessimistic in recessions and too optimistic in expansions. The change in monetary policy that occured in the late 1970s has been attributed in the literature to the Fed coming to terms with the difficulties in predicting real variables. Our results offer an alternative explanation: A combination of different preferences over expansions and recessions and less frequent recessions in the latter part of the sample.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2013-012.
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-06 (All new papers)
- NEP-CBA-2013-04-06 (Central Banking)
- NEP-FOR-2013-04-06 (Forecasting)
- NEP-MAC-2013-04-06 (Macroeconomics)
- NEP-MON-2013-04-06 (Monetary Economics)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao).
If references are entirely missing, you can add them using this form.