A defence of the FOMC

Thomas Sargent and Martin Ellison

No 7510, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Forecasting; Robustness; Monetary policy (search for similar items in EconPapers)
JEL-codes: C53 E52 E58 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-cba, nep-for and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: A DEFENSE OF THE FOMC (2012)
Working Paper: A defence of the FOMC (2009)
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