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Federal Reserve information during the great moderation

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  • D'Agostino, Antonello
  • Whelan, Karl

Abstract

Using data from the period 1970-1991, Romer and Romer (2000) showed that Federal Reserve forecasts of inflation and output were superior to those provided by commercial forecasters. In this paper, we show that this superior forecasting performance deteriorated after 1991. Over the decade 1992-2001, the superior forecast accuracy of the Fed held only over a very short time horizon and was limited to its forecasts of inflation. In addition, the performance of both the Fed and the commercial forecasters in predicting inflation and output, relative to that of “naive” benchmark models, dropped remarkably during this period.

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File URL: http://researchrepository.ucd.ie/bitstream/10197/252/3/whelank_article_post_024.pdf
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Bibliographic Info

Paper provided by University College Dublin in its series Open Access publications from University College Dublin with number urn:hdl:10197/252.

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Length: 12
Date of creation: Apr 2008
Date of revision:
Publication status: Published in Journal of the European Economic Association (2008-04) v.6, p.609-620
Handle: RePEc:ner:ucddub:urn:hdl:10197/252

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Web page: http://www.ucd.ie

Related research

Keywords: Board of Governors of the Federal Reserve System (U.S.); Inflation (Finance); Economic forecasting;

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References

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  1. Jon Faust & Eric T. Swanson & Jonathan H. Wright, 2004. "Do Federal Reserve Policy Surprises Reveal Superior Information about the Economy?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 10.
  2. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
  3. Christopher A. Sims, 2002. "The Role of Models and Probabilities in the Monetary Policy Process," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 1-62.
  4. James H. Stock & Mark W. Watson, 2006. "Why Has U.S. Inflation Become Harder to Forecast?," NBER Working Papers 12324, National Bureau of Economic Research, Inc.
  5. D'Agostino, Antonello & Domenico, Giannone & Surico, Paolo, 2006. "(Un)Predictability and Macroeconomic Stability," Research Technical Papers 5/RT/06, Central Bank of Ireland.
  6. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
  7. Campbell, Sean D., 2007. "Macroeconomic Volatility, Predictability, and Uncertainty in the Great Moderation: Evidence From the Survey of Professional Forecasters," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 191-200, April.
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Citations

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Cited by:
  1. Hubert, Paul, 2010. "Monetary Policy, Imperfect Information and the Expectations Channel," Open Access publications from Sciences Po info:hdl:2441/f4rshpf3v1u, Sciences Po.
  2. Daniel L. Thornton, 2009. "How did we get to inflation targeting and where do we go now? a perspective from the U.S. experience," Working Papers 2009-038, Federal Reserve Bank of St. Louis.
  3. Liebermann, Joelle, 2012. "Real-time forecasting in a data-rich environment," Research Technical Papers 07/RT/12, Central Bank of Ireland.
  4. João Valle e Azevedo & João Tovar Jalles, 2011. "Rational vs. Professional Forecasts," Working Papers w201114, Banco de Portugal, Economics and Research Department.
  5. Muto, Ichiro, 2013. "Productivity growth, transparency, and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 329-344.
  6. Henning Fischer & Marta García-Bárzana & Peter Tillmann & Peter Winker, 2012. "Evaluating FOMC forecast ranges: an interval data approach," MAGKS Papers on Economics 201213, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Kishor N. Kundan, 2010. "The Superiority of Greenbook Forecasts and the Role of Recessions," National Bank of Poland Working Papers 74, National Bank of Poland, Economic Institute.
  8. Makram El-Shagi & Sebastian Giesen & A. Jung, 2012. "Does Central Bank Staff Beat Private Forecasters?," IWH Discussion Papers 5, Halle Institute for Economic Research.

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