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Federal Reserve Information During the Great Moderation

Author

Listed:
  • D'Agostino, A
  • Whelan, K

Abstract

Using data from the period 1970-1991, Romer and Romer (2000) showed that Federal Reserve forecasts of inflation and output were superior to those provided by commercial forecasters. In this paper, we show that this superior forecasting performance deteriorated after 1991. Over the decade 1992-2001, the superior forecast accuracy of the Fed held only over a very short time horizon and was limited to its forecasts of inflation. In addition, the performance of both the Fed and the commercial forecasters in predicting inflation and output, relative to that of "naive" benchmark models, dropped remarkably during this period.

Suggested Citation

  • D'Agostino, A & Whelan, K, 2007. "Federal Reserve Information During the Great Moderation," MPRA Paper 6092, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:6092
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    File URL: https://mpra.ub.uni-muenchen.de/6092/1/MPRA_paper_6092.pdf
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    References listed on IDEAS

    as
    1. Ben S. Bernanke, 2006. "Reflections on the yield curve and monetary policy," Speech 175, Board of Governors of the Federal Reserve System (U.S.).
    2. 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.
    3. Christopher A. Sims, 2002. "The Role of Models and Probabilities in the Monetary Policy Process," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 1-62.
    4. Antonello D'Agostino & Domenico Giannone & Paolo Surico, 2005. "(Un)Predictability and Macroeconomic Stability," Macroeconomics 0510024, EconWPA.
    5. repec:fip:fedgsq:y:2006:i:mar20 is not listed on IDEAS
    6. 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.
    7. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 3-33, February.
    8. Peter Tulip, 2005. "Has output become more predictable? changes in Greenbook forecast accuracy," Finance and Economics Discussion Series 2005-31, Board of Governors of the Federal Reserve System (U.S.).
    9. Andrew Atkeson & Lee E. Ohanian, 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
    10. Campbell, Sean D., 2007. "Macroeconomic Volatility, Predictability, and Uncertainty in the Great Moderation: Evidence From the Survey of Professional Forecasters," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 191-200, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. El-Shagi, Makram & Giesen, Sebastian & Jung, Alexander, 2016. "Revisiting the relative forecast performances of Fed staff and private forecasters: A dynamic approach," International Journal of Forecasting, Elsevier, vol. 32(2), pages 313-323.
    2. Carlo Altavilla & Domenico Giannone, 2017. "The Effectiveness of Non‐Standard Monetary Policy Measures: Evidence from Survey Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(5), pages 952-964, August.
    3. Ásgeir Daníelsson, 2008. "The great moderation Icelandic style," Economics wp38, Department of Economics, Central bank of Iceland.
    4. Paul Hubert, 2015. "Revisiting the Greenbook’s relative forecasting performance," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 151-179.
    5. El-Shagi, Makram & Giesen, Sebastian & Jung, Alexander, 2012. "Does Central Bank Staff Beat Private Forecasters?," IWH Discussion Papers 5/2012, Halle Institute for Economic Research (IWH).
    6. Jung, Alexander & El-Shagi, Makram & Giesen, Sebastian, 2014. "Does the federal reserve staff still beat private forecasters?," Working Paper Series 1635, European Central Bank.
    7. Muto, Ichiro, 2013. "Productivity growth, transparency, and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 329-344.
    8. Ásgeir Daníelsson, 2008. "Accuracy in forecasting macroeconomic variables in Iceland," Economics wp39, Department of Economics, Central bank of Iceland.
    9. Paul Hubert, 2009. "An Empirical Review of Federal Reserve’s Informational Advantage," Documents de Travail de l'OFCE 2009-03, Observatoire Francais des Conjonctures Economiques (OFCE).
    10. Henning Fischer & Marta García-Bárzana & Peter Tillmann & Peter Winker, 2014. "Evaluating FOMC forecast ranges: an interval data approach," Empirical Economics, Springer, vol. 47(1), pages 365-388, August.
    11. Kishor N. Kundan, 2010. "The Superiority of Greenbook Forecasts and the Role of Recessions," NBP Working Papers 74, Narodowy Bank Polski, Economic Research Department.
    12. João Valle e Azevedo, 2011. "Rational vs. professional forecasts," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
    13. repec:spo:wpmain:info:hdl:2441/3pot7260lh88lrfhrhvs85lh2f is not listed on IDEAS
    14. Daniel L. Thornton, 2009. "How did we get to inflation targeting and where do we go now? a perspective from the U.S. experience," Working Papers 2009-038, Federal Reserve Bank of St. Louis.
    15. Liebermann, Joelle, 2012. "Real-time forecasting in a data-rich environment," MPRA Paper 39452, University Library of Munich, Germany.
    16. Gamber, Edward N. & Liebner, Jeffrey P. & Smith, Julie K., 2015. "The distribution of inflation forecast errors," Journal of Policy Modeling, Elsevier, vol. 37(1), pages 47-64.
    17. Paul Hubert, 2010. "Monetary Policy, Imperfect Information and the Expectations Channel," Sciences Po publications info:hdl:2441/f4rshpf3v1u, Sciences Po.
    18. repec:spo:wpecon:info:hdl:2441/f4rshpf3v1umfa09lat09b1bg is not listed on IDEAS

    More about this item

    JEL classification:

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

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