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The distribution of inflation forecast errors

Edward N. Gamber, Jeffrey P. Liebner and Julie Smith

Journal of Policy Modeling, 2015, vol. 37, issue 1, 47-64

Abstract: This paper investigates the cross-sectional distribution of inflation forecasts errors over the period 1984–2007. Our working hypothesis is that the Fed's movement toward greater transparency starting in the mid-1990s likely affected both the distribution of forecast errors and the location of the Fed's staff forecasts within that distribution. This paper builds on earlier work which compared Fed forecasts to the mean or median of private sector forecasts by examining the entire distribution of forecasts. By examining the entire distribution we are able to compare the forecasting record of particular forecasters against a record comprised of randomly assigned forecasts from the Survey of Professional Forecasters. Since the Fed's move toward greater transparency beginning in 1994, its forecasting record is no longer significantly better than the forecasting record comprised of randomly assigned forecasts.

Keywords: Inflation forecast errors; Greenbook forecasts; Survey of Professional Forecasters; Federal Reserve Transparency (search for similar items in EconPapers)
JEL-codes: E31 E37 E58 (search for similar items in EconPapers)
Date: 2015
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