Does the FOMC Have Expertise, and Can It Forecast?
AbstractThe primary purpose of the paper is to answer the following two questions regarding the performance of the influential Federal Open Market Committee (FOMC) of the Federal Reserve System, in comparison with the forecasts contained in the "Greenbooks" of the professional staff of the Board of Governors: Does the FOMC have expertise, and can it forecast better than the staff? The FOMC forecasts that are analyzed in practice are nonreplicable forecasts. In order to evaluate such forecasts, this paper develops a model to generate replicable FOMC forecasts, and compares the staff forecasts, non-replicable FOMC forecasts, and replicable FOMC forecasts, considers optimal forecasts and efficient estimation methods, and presents a direct test of FOMC expertise on nonreplicable FOMC forecasts. The empirical analysis of Romer and Romer (2008) is reexamined to evaluate whether their criticisms of the FOMC's forecasting performance should be accepted unreservedly, or might be open to alternative interpretations.
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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-648.
Length: 27 pages
Date of creation: Aug 2009
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Other versions of this item:
- Franses, Ph.H.B.F. & McAleer, M.J. & Legerstee, R., 2008. "Does the ROMC have expertise, and can it forecast?," Econometric Institute Research Papers EI 2008-33, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- NEP-ALL-2009-08-22 (All new papers)
- NEP-CBA-2009-08-22 (Central Banking)
- NEP-FOR-2009-08-22 (Forecasting)
- NEP-MON-2009-08-22 (Monetary Economics)
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- McAleer, Michael, 1992. "Efficient Estimation: The Rao-Zyskind Condition, Kruskal's Theorem and Ordinary Least Squares," The Economic Record, The Economic Society of Australia, vol. 68(200), pages 65-72, March.
- McAleer, Michael, 1995. "The significance of testing empirical non-nested models," Journal of Econometrics, Elsevier, vol. 67(1), pages 149-171, May.
- Fiebig, Denzil G. & McAleer, Michael & Bartels, Robert, 1992. "Properties of ordinary least squares estimators in regression models with nonspherical disturbances," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 321-334.
- Franses, Ph.H.B.F. & McAleer, M.J. & Legerstee, R., 2008.
"Expert opinion versus expertise in forecasting,"
Econometric Institute Research Papers
EI 2008-30, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Christina D. Romer & David H. Romer, 2003.
"A New Measure of Monetary Shocks: Derivation and Implications,"
NBER Working Papers
9866, National Bureau of Economic Research, Inc.
- Christina D. Romer & David H. Romer, 2004. "A New Measure of Monetary Shocks: Derivation and Implications," American Economic Review, American Economic Association, vol. 94(4), pages 1055-1084, September.
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