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Evaluating FOMC forecast ranges: an interval data approach

  • Henning Fischer

    ()

    (University of Giessen)

  • Marta García-Bárzana

    ()

    (University of Oviedo)

  • Peter Tillmann

    ()

    (University of Giessen)

  • Peter Winker

    ()

    (University of Giessen)

The Federal Open Market Committee (FOMC) of the U.S. Federal Reserve publishes the range of members’ forecasts for key macroeconomic variables, but not the distribution of forecasts within this range. To evaluate these projections, previous papers compare the midpoint of the ranges with the realized outcome. This paper proposes a new approach to forecast evaluation that takes account of the interval nature of projections. It is shown that using the conventional Mincer-Zarnowitz approach to evaluate FOMC forecasts misses important information contained in the width of the forecast interval. This additional information plays a minor role at short forecast horizons but turns out to be of crucial importance for inflation and unemployment forecasts 18 months into the future. At long horizons the variation of members’ projections contains information which is more relevant for explaining future inflation than information embodied in the midpoint.

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File URL: https://www.uni-marburg.de/fb02/makro/forschung/magkspapers/13-2012_tillmann.pdf
File Function: First version, 2012
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Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201213.

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Length: 16 pages
Date of creation: 2012
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201213
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  1. Antonello D'Agostino & Karl Whelan, 2008. "Federal Reserve Information During the Great Moderation," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 609-620, 04-05.
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  18. Edward N. Gamber & Julie K. Smith, 2007. "Are the Fed’s Inflation Forecasts Still Superior to the Private Sector’s?," Working Papers 2007-002, The George Washington University, Department of Economics, Research Program on Forecasting, revised Jul 2008.
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