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FOMC Forecasts of Macroeconomic Risks

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Abstract

This paper presents a new approach to the evaluation of FOMC macroeconomic forecasts. Its distinctive feature is the interpretation, under reasonable conditions, of the minimum and maximum forecasts reported in FOMC meetings as indicative of probability density forecasts for these variables. This leads to some straightforward binomial tests of the performance of the FOMC forecasts as forecasts of macroeconomic risks. Empirical results suggest that there are serious problems with the FOMC forecasts. Most particularly, there are problems with the FOMC forecasts of the tails of the macroeconomic density functions, including a tendency to under-estimate the tails of macroeconomic risks.

Suggested Citation

  • Kevin Dowd, 2004. "FOMC Forecasts of Macroeconomic Risks," Occasional Papers 12, Industrial Economics Division, revised 10 Jan 2004.
  • Handle: RePEc:nub:occpap:12
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    File URL: http://www.nottingham.ac.uk/%7Elizecon/RePEc/pdf/12.pdf
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    References listed on IDEAS

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    1. Gavin, William T. & Mandal, Rachel J., 2003. "Evaluating FOMC forecasts," International Journal of Forecasting, Elsevier, vol. 19(4), pages 655-667.
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    Cited by:

    1. Ozun, Alper & Cifter, Atilla, 2007. "Portfolio Value-at-Risk with Time-Varying Copula: Evidence from the Americas," MPRA Paper 2711, University Library of Munich, Germany.
    2. William T. Gavin & Geetanjali Pande, 2008. "FOMC consensus forecasts," Review, Federal Reserve Bank of St. Louis, issue May, pages 149-164.

    More about this item

    Keywords

    Macroeconomic risks; FOMC forecasts; density forecasting;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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