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Do Fed Forecast Errors Matter?

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Listed:
  • Tara Sinclair

    (George Washington University)

  • Pao-Lin Tien

    (Bureau of Economic Analysis)

  • Edward Gamber

    (Congressional Budget Office)

Abstract

This paper constructs a measure of a forecast error shock for the Fed based on the assumption that it follows a forward-looking Taylor rule. The shock can be viewed as analogous to a monetary policy shock. However, it differs from a monetary policy shock in that it is completely unintended by the Fed rather than simply unanticipated by the public. We investigate the effect of the forecast error shock on output and price movements. Our results suggest that although the absolute magnitude of the forecast error shock is large, the impact of the shock on the macroeconomy is quite small.

Suggested Citation

  • Tara Sinclair & Pao-Lin Tien & Edward Gamber, 2016. "Do Fed Forecast Errors Matter?," Working Papers 2016-14, The George Washington University, Institute for International Economic Policy, revised Aug 2018.
  • Handle: RePEc:gwi:wpaper:2016-14
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    Cited by:

    1. Ettmeier, Stephanie & Kriwoluzky, Alexander, 2019. "Same, but different? Testing monetary policy shock measures," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics.
    2. Siklos, Pierre, 2017. "What Has Publishing Inflation Forecasts Accomplished? Central Banks And Their Competitors," LCERPA Working Papers 0098, Laurier Centre for Economic Research and Policy Analysis, revised 01 Apr 2017.
    3. Michael T. Belongia & Peter N. Ireland, 2018. "Monetary Policy Lessons from the Greenbook," Boston College Working Papers in Economics 955, Boston College Department of Economics.
    4. Kshitiz Mishra & Partha Chatterjee, 2021. "Monetary Business Cycle Accounting Analysis of Indian Economy," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(3), pages 471-491, September.
    5. Jennifer Castle & David Hendry, 2016. "Policy Analysis, Forediction, and Forecast Failure," Economics Series Working Papers 809, University of Oxford, Department of Economics.
    6. Jennifer L. Castle & David F. Hendry & Andrew B. Martinez, 2017. "Evaluating Forecasts, Narratives and Policy Using a Test of Invariance," Econometrics, MDPI, vol. 5(3), pages 1-27, September.

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    More about this item

    Keywords

    Federal Reserve; Taylor rule; forecast evaluation; monetary policy shocks;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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