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A Defense Of The Fomc

  • Martin Ellison
  • Thomas J. Sargent

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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File URL: http://hdl.handle.net/10.1111/j.1468-2354.2012.00711.x
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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 53 (2012)
Issue (Month): 4 (November)
Pages: 1047-1065

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Handle: RePEc:wly:iecrev:v:53:y:2012:i:4:p:1047-1065
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