Asymmetry, Complementarities, and State Dependence in Federal Reserve Forecasts

Julieta Caunedo, Riccardo DiCecio, Ivana Komunjer and Michael Owyang

No 2013-012, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Forecasts are a central component of policy making; the Federal Reserve''s forecasts are published in a document called the Greenbook. Previous studies of the Greenbook''s inflation forecasts have found them to be rationalizable but asymmetric if considering particular sub-periods, e.g., before and after the Volcker appointment. In these papers, forecasts are analyzed in isolation, assuming policymakers value them independently. We analyze the Greenbook fore- casts in a framework in which the forecast errors are allowed to interact. We find that allowing the losses to interact makes the unemployment forecasts virtually symmetric, the output forecasts symmetric prior to the Volcker appointment, and the inflation forecasts symmetric after the onset of the Great Moderation.

Keywords: economic research; forecast rationality; loss function; Taylor rule; Greenbook forecasts; break tests (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Pages: 38
Date: 2013, Revised 2017-12-29
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Journal Article: Asymmetry, Complementarities, and State Dependence in Federal Reserve Forecasts (2020)
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DOI: 10.20955/wp.2013.012

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