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FOMC Forecasts of Macroeconomic Risks

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.

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File URL: http://www.nottingham.ac.uk/%7Elizecon/RePEc/pdf/12.pdf
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Paper provided by Industrial Economics Division in its series Occasional Papers with number 12.

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Length: pages
Date of creation: 09 2004
Date of revision: 10 Jan 2004
Handle: RePEc:nub:occpap:12
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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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