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Fiscal Surprises at the FOMC

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  • Croushore, Dean
  • van Norden, Simon

Abstract

We examine a new set of U.S. fiscal forecasts from the FOMC briefing books. These forecasts are precisely those that were presented to monetary policymakers, and include frequently-updated estimates covering six complete business cycles and several fiscal-policy regimes. We detail the performances of forecast federal expenditures, revenues, surpluses, and structural surpluses in terms of their accuracy, bias, and efficiency. We find that forecast errors can be large economically, even at relatively short forecast horizons. While economic activity became less volatile after 1990, fiscal policy became harder to forecast. Finally, cyclically-adjusted deficit forecasts appear to be over-optimistic around both peaks and troughs of the business cycle, suggesting that fiscal policy is counter-cyclical in downturns and pro-cyclical in the early stages of recoveries.

Suggested Citation

  • Croushore, Dean & van Norden, Simon, 2019. "Fiscal Surprises at the FOMC," International Journal of Forecasting, Elsevier, vol. 35(4), pages 1583-1595.
  • Handle: RePEc:eee:intfor:v:35:y:2019:i:4:p:1583-1595
    DOI: 10.1016/j.ijforecast.2019.02.009
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    Cited by:

    1. Galbraith, John W. & van Norden, Simon, 2019. "Asymmetry in unemployment rate forecast errors," International Journal of Forecasting, Elsevier, vol. 35(4), pages 1613-1626.
    2. Andrew C. Chang & Trace J. Levinson, 2023. "Raiders of the lost high‐frequency forecasts: New data and evidence on the efficiency of the Fed's forecasting," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(1), pages 88-104, January.
    3. Arai, Natsuki, 2020. "Investigating the inefficiency of the CBO’s budgetary projections," International Journal of Forecasting, Elsevier, vol. 36(4), pages 1290-1300.

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    More about this item

    Keywords

    Fiscal policy; Deficits; Forecasting; FOMC; Greenbook;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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