Are the Fed’s Inflation Forecasts Still Superior to the Private Sector’s?

Edward N. Gamber () and Julie Smith
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Edward N. Gamber: Department of Economics and Business, Lafayette College

No 2007-002, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting

Abstract: We examine the relative improvement in forecasting accuracy of the Federal Reserve (Greenbook forecasts) and private-sector forecasts (the Survey of Professional Forecasters and Blue Chip Economic Indicators) for inflation. Previous research by Romer and Romer (2000), and Sims (2002) shows that the Fed is more accurate than the private sector at forecasting inflation. In a separate line of research, Atkeson and Ohanian (2001) and Stock and Watson (2007) document changes in the forecastability of inflation since the Great Moderation. These works suggest that the reduced inflation variability associated with Great Moderation was mostly due to a decline in the variability of the predictable component inflation. We hypothesize that the decline in the variability of the predictable component of inflation has evened the playing field between the Fed and private sector and therefore led to a narrowing, if not disappearance, of the Fed’s relative forecasting advantage. We find that the Fed’s forecast errors remain significantly smaller than the private sector’s but the gap has narrowed considerable since the mid-1980s, especially after 1994.

Keywords: forecasting inflation; Survey of Professional Forecasters; Blue Chip forecasts; Greenbook forecasts; naïve forecasts (search for similar items in EconPapers)
JEL-codes: E37 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-11, Revised 2008-07
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 (1)

Forthcoming in the Journal of Macroeconomics

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https://www2.gwu.edu/~forcpgm/2007-002.pdf First version, 2007 (application/pdf)
https://www2.gwu.edu/~forcpgm/2007-002.pdf Revised version, 2008 (application/pdf)

Related works:
Journal Article: Are the Fed's inflation forecasts still superior to the private sector's? (2009)
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