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The Superiority of Greenbook Forecasts and the Role of Recessions

  • Kishor N. Kundan

    (University of Wisconsin-Milwaukee)

In this paper, we investigate the role of recessions on the relative forecasting performance of the Fed and the private sector. Romer and Romer (2000) showed that the Fed's forecasts of inflation and output were superior to that of the private sector in the pre-1991 period. D'Agostino and Whelan (2008) found that the information superiority of the Fed deteriorated after 1991. Our results show that the information superiority of the Fed in forecasting real activity did arise from its forecasting dominance during recessions. If recessions are excluded from the pre-1992 period, the informational advantage of the Fed disappears, and in some cases, private sector forecasts perform better. We do not find any systematic effect of recessions on inflation forecasts.

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Paper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 74.

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Length: 28
Date of creation: 2010
Date of revision:
Handle: RePEc:nbp:nbpmis:74
Note: The paper was presented at the National Bank of Poland’s conference „Publishing central banks forecast in theory and practice” held on 5–6 November 2009 in Warsaw.
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Web page: http://www.nbp.pl/Homen.aspx?f=/en/publikacje/materialy_i_studia/informacja_en.html

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  1. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
  2. 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.
  3. West, Kenneth D, 1996. "Asymptotic Inference about Predictive Ability," Econometrica, Econometric Society, vol. 64(5), pages 1067-84, September.
  4. Harvey, David I & Leybourne, Stephen J & Newbold, Paul, 1998. "Tests for Forecast Encompassing," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 254-59, April.
  5. Gamber, Edward N. & Smith, Julie K., 2009. "Are the Fed's inflation forecasts still superior to the private sector's?," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 240-251, June.
  6. Jon Faust & Jonathan H. Wright, 2007. "Comparing Greenbook and Reduced Form Forecasts using a Large Realtime Dataset," NBER Working Papers 13397, National Bureau of Economic Research, Inc.
  7. Margaret McConnell & Gabriel Perez Quiros, 2000. "Output fluctuations in the United States: what has changed since the early 1980s?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  8. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November.
  9. Baghestani, Hamid, 2006. "Federal reserve vs. private forecasts of real net exports," Economics Letters, Elsevier, vol. 91(3), pages 349-353, June.
  10. William T. Gavin & Rachel J. Mandal, 2001. "Forecasting inflation and growth: do private forecasts match those of policymakers?," Review, Federal Reserve Bank of St. Louis, issue May, pages 11-20.
  11. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  12. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
  13. Faust Jon & Swanson Eric T & Wright Jonathan H, 2004. "Do Federal Reserve Policy Surprises Reveal Superior Information about the Economy?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-31, October.
  14. Faust, Jon & Wright, Jonathan H., 2009. "Comparing Greenbook and Reduced Form Forecasts Using a Large Realtime Dataset," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 468-479.
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