A defence of the FOMC

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A defence of the FOMC

Author Info

Martin Ellison
Thomas J. Sargent

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Martin Ellison

Abstract

We defend the forecasting performance of the FOMC from the recent criticism of Christina and David Romer. Our argument is that the FOMC forecasts a worst-case scenario that it uses to design decisions that will work well enough (are robust) despite possible misspecification of its model. Because these FOMC forecasts are not predictions of what the FOMC expects to occur under its model, it is inappropriate to compare their performance in a horse race against other forecasts. Our interpretation of the FOMC as a robust policymaker can explain all the findings of the Romers and rationalises differences between FOMC forecasts and forecasts published in the Greenbook by the staff of the Federal Reserve System.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 457.

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Date of creation: 2009
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Handle: RePEc:oxf:wpaper:457

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Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model 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

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-10-24 (All new papers)
NEP-CBA-2009-10-24 (Central Banking)
NEP-FOR-2009-10-24 (Forecasting)
NEP-MON-2009-10-24 (Monetary Economics)

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This page was last updated on 2009-11-18.

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