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A defence of the FOMC

  • Martin Ellison
  • Thomas J. Sargent

We defend the forecasting performance of the FOMC from the recent criticism of Christina and David Romer.� Our argument is that the FOMC forecasts a worst-case scenario that it uses to design decisions that will work well enough (are robust) despite possible misspecification of its model.� Because these FOMC forecasts are not predictions of what the FOMC expects to occur under its model, it is inappropriate to compare their performance in a horse race against other forecasts.� Our interpretation of the FOMC as a robust policymaker can explain all the findings of the Romers and rationalises differences between FOMC forecasts and forecasts published in the Greenbook by the staff of the Federal Reserve System.

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File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper457.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 457.

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Date of creation: 01 Oct 2009
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Handle: RePEc:oxf:wpaper:457
Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
Web page: http://www.economics.ox.ac.uk/
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