Forecasting Inflation and Growth: Do Private Forecasts Match Those of Policymakers?

William T. Gavin

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Forecasting Techniques and Applications

Abstract

Federal Open Market Committee (FOMC) projections are important because they provide information for evaluating current monetary policy intentions and because they indicate what FOMC members think will be the likely consequence of their policies. Knowing the Fed's objectives, their forecasts, and recent deviations of the economy from the forecasts should be sufficient to understand how the Fed is making monetary policy. Results here show that the Blue Chip consensus forecasts are a good proxy for the FOMC views. For example, they match the policymakers' views as closely as do the Board staff forecasts presented at FOMC meetings. Using alternative forms of the Taylor rule, the authors show that the Blue Chip consensus and the Fed policymakers' forecasts have almost identical implications for the monetary policy process.

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References

1993Discretion versus policy rules in practice 1998Interest-Rate Rules in an Estimated Sticky Price Model 1997Inflation Forecasts and Monetary Policy 2000Indicator Variables for Optimal Policy 1999The Science of Monetary Policy: A New Keynesian Perspective 2000Pitfalls of Forward-Looking Monetary Policy 1999How Useful Are Taylor Rules for Monetary Policy 1998Monetary Policy Rules Based on Real-Time Data

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2007Gauging the Uncertainty of the Economic Outlook from Historical Forecasting Errors 2003Evaluating FOMC forecasts 2003Strategic bias, herding behaviour and economic forecasts 2018Gauging the uncertainty of the economic outlook using historical forecasting errors: The Federal Reserve’s approach 2007Federal Reserve versus private information: Who is the best unemployment rate predictor?2011Forecasting Interest Rates and Inflation: Blue Chip Clairvoyants or Econometrics?

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