A Look at the Accuracy of Policy Expectations

Richard Crump, Stefano Eusepi and Emanuel Moench

No 20110822, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Since the 1980s, the primary policy tool of the Federal Reserve has been the federal funds rate. Because expectations of the future path of the funds rate play a central role in the term structure of interest rates and thus the monetary transmission mechanism, it is important to know how accurate these expectations are in predicting the funds rate. In this post, we investigate this issue using a well-known survey of private sector forecasters. We find that forecasts tend to over-predict the funds rate in easing cycles and under-predict it in tightening cycles. In addition, while forecasts during tightening cycles have become more accurate over time, forecast accuracy during easing cycles has not improved.

Keywords: macroeconomic forecasts; Taylor Rule; Policy expectations (search for similar items in EconPapers)
JEL-codes: E5 (search for similar items in EconPapers)
Date: 2011-08-22
New Economics Papers: this item is included in nep-mac and nep-mon
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