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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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