Can the Fed Predict the State of the Economy?

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Can the Fed Predict the State of the Economy?

Author Info

Tara M. Sinclair () (Department of Economics The George Washington University)
Fred Joutz () (Department of Economics The George Washington University)
Herman O. Stekler () (Department of Economics The George Washington University)

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Abstract

Recent research has documented that the Federal Reserve produces systematic errors in forecasting inflation, real GDP growth, and the unemployment rate, even though these forecasts are unbiased. We show that these systematic errors reveal that the Fed is “surprised” by real and inflationary cycles. Using a modified Mincer-Zarnowitz regression, we show that the Fed knows the state of the economy for the current quarter, but cannot predict it one quarter ahead.

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Paper provided by The George Washinton University, Department of Economics, Research Program on Forecasting in its series Working Papers with number 2009-001.

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Length: 10 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:gwc:wpaper:2009-001

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For technical questions regarding this item, or to correct its listing, contact: (Tara M. Sinclair).

Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
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

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-07-11 (All new papers)
NEP-CBA-2009-07-11 (Central Banking)
NEP-FOR-2009-07-11 (Forecasting)
NEP-MON-2009-07-11 (Monetary Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Holden, K & Peel, D A, 1990. "On Testing for Unbiasedness and Efficiency of Forecasts," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 58(2), pages 120-27, June.
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. [Downloadable!] (restricted)

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This page was last updated on 2009-11-14.

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