Jointly Evaluating GDP and Inflation Forcasts in the Context of the Taylor Rule
AbstractThis paper evaluates the potential impact of forecast errors on policy. We jointly evaluate the Federal Reserve staff forecasts of U.S. real output growth and the inflation rate in the context of the Taylor (1993) monetary policy rule. Our simple methodology generates “policy forecast errors” which have a direct interpretation for the impact of forecast errors on policy. Without interest rate smoothing, we find that, on average, Fed policy based on the Taylor rule would have been approximately a full percentage point away from the intended target because of errors in forecasting output growth and inflation.
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Bibliographic InfoPaper provided by The George Washington University, Institute for International Economic Policy in its series Working Papers with number 2008-05.
Length: 24 pages
Date of creation: Jun 2009
Date of revision:
Forecast Evaluation; Federal Reserve Forecasts; Monetary Policy;
Find related papers by JEL classification:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- 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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- Lahiri, Kajal & Sheng, Xuguang, 2009.
"Learning and heterogeneity in GDP and inflation forecasts,"
21448, University Library of Munich, Germany.
- Lahiri, Kajal & Sheng, Xuguang, 2010. "Learning and heterogeneity in GDP and inflation forecasts," International Journal of Forecasting, Elsevier, vol. 26(2), pages 265-292, April.
- Kajal Lahiri & Xuguang Sheng, 2009. "Learning and Heterogeneity in GDP and Inflation Forecasts," Discussion Papers 09-05, University at Albany, SUNY, Department of Economics.
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