Jointly Evaluating the Federal Reserve’s Forecasts of GDP Growth and Inflation

Sinclair Tara M. (), Gamber Edward N. (), H.O. Stekler () and Reid Elizabeth ()
Additional contact information
Sinclair Tara M.: Department of Economics, George Washington University
Gamber Edward N.: Department of Economics and Business, Lafayette College
H.O. Stekler: Department of Economics, George Washington University
Reid Elizabeth: Department of Economics, George Washington University

No 2008-002, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting

Abstract: In this paper we jointly evaluate the Federal Reserve staff forecasts of U.S. real output growth and the inflation rate assuming the forecasts are to be used as inputs for the Taylor rule. Our simple methodology generates “policy forecast errors” which have a direct interpretation for the impact of forecast errors on the target interest rate given by the Taylor rule. Without interest rate smoothing, we find that, on average, the Taylor rule target interest rate would have been approximately a full percentage point away from the intended target because of errors in forecasting output growth and inflation. Our results are robust to changes in the forecast horizon and to changes in the weights on the variables in the policy rule.

Keywords: Evaluating Forecasts; Macroeconomic Forecasts; Loss Function; Inflation Forecasting; GDP Growth Forecasting; Monetary Policy (search for similar items in EconPapers)
JEL-codes: C53 E37 E52 E58 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2008-04, Revised 2011-03
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-for and nep-mon
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://www2.gwu.edu/~forcpgm/2008-002.pdf First version, 2008 (application/pdf)
https://www2.gwu.edu/~forcpgm/2008-002.pdf Revised version, 2011 (application/pdf)

Related works:
Journal Article: Jointly evaluating the Federal Reserve’s forecasts of GDP growth and inflation (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:gwc:wpaper:2008-002

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