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FOMC Forecasts of Macroeconomic Risks

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    Abstract

    This paper presents a new approach to the evaluation of FOMC macroeconomic forecasts. Its distinctive feature is the interpretation, under reasonable conditions, of the minimum and maximum forecasts reported in FOMC meetings as indicative of probability density forecasts for these variables. This leads to some straightforward binomial tests of the performance of the FOMC forecasts as forecasts of macroeconomic risks. Empirical results suggest that there are serious problems with the FOMC forecasts. Most particularly, there are problems with the FOMC forecasts of the tails of the macroeconomic density functions, including a tendency to under-estimate the tails of macroeconomic risks.

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    File URL: http://www.nottingham.ac.uk/%7Elizecon/RePEc/pdf/12.pdf
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    Bibliographic Info

    Paper provided by Industrial Economics Division in its series Occasional Papers with number 12.

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    Length: pages
    Date of creation: 09 2004
    Date of revision: 10 Jan 2004
    Handle: RePEc:nub:occpap:12

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    Related research

    Keywords: Macroeconomic risks; FOMC forecasts; density forecasting;

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    1. William T. Gavin & Rachel J. Mandal, 2002. "Evaluating FOMC forecasts," Working Papers 2001-005, Federal Reserve Bank of St. Louis.
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    Cited by:
    1. Ozun, Alper & Cifter, Atilla, 2007. "Portfolio Value-at-Risk with Time-Varying Copula: Evidence from the Americas," MPRA Paper 2711, University Library of Munich, Germany.
    2. William T. Gavin & Geetanjali Pande, 2008. "FOMC consensus forecasts," Review, Federal Reserve Bank of St. Louis, issue May, pages 149-164.

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