Can the Fed Predict the State of the Economy?
Recent research has documented that the Federal Reserve produces systematic errors in forecasting inflation, real GDP growth, and the unemployment rate, even though these forecasts are unbiased. We show that these systematic errors reveal that the Fed is “surprised” by real and inflationary cycles. Using a modified Mincer-Zarnowitz regression, we show that the Fed knows the state of the economy for the current quarter, but cannot predict it one quarter ahead.
|Date of creation:||Jun 2009|
|Date of revision:||Mar 2010|
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CAMA Working Papers
2005-14, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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