Federal Reserve forecasts of nonfarm payroll employment across different political regimes

Hamid Baghestani and Barry Poulson

Journal of Economic Studies, 2012, vol. 39, issue 3, 280-289

Abstract: Purpose - This study is motivated by the view that Democrats are concerned with reducing unemployment in the short‐run, while Republicans are concerned with keeping inflation low to promote economic stability and growth. The purpose of this paper is to ask whether the Federal Reserve forecasts of nonfarm payroll employment are accurate and free of systematic bias during the 1977‐2000 Democratic and Republican administrations. Design/methodology/approach - The authors employ comparable forecasts from a univariate autoregressive integrated moving‐average (ARIMA) model to assess forecast accuracy. An ARIMA model efficiently utilizes past information and thus yields desirable forecasts commonly used as benchmarks. Findings - Federal Reserve forecasts during the Democratic Administrations, while failing to outperform the ARIMA forecasts, display systematic under‐prediction. Such evidence is consistent with a discretionary approach to monetary policy when the bias is in the direction of full employment. During the Republican Administrations, the Federal Reserve forecasts, while superior to the ARIMA forecasts, are free of systematic bias. This, we argue, is consistent with a monetary policy that approximated the Taylor rule. Research limitations/implications - The distinct behavior over the two administrations is unique to the nonfarm payroll employment forecasts and cannot be substantiated for the Federal Reserve forecasts of other macroeconomic variables. Originality/value - This study provides new insights into the monetary policies pursued during the 1977‐2000 Democratic and Republican administrations. The findings are useful and informative for the design and implementation of monetary policy.

Keywords: United States of America; Monetary policy; Politics; Macroeconomics; Employment; Federal Open Market Committee; Taylor rule; Forecasting bias; Political business cycle (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:v:39:y:2012:i:3:p:280-289

DOI: 10.1108/01443581211245874

Access Statistics for this article

Journal of Economic Studies is currently edited by Prof Mohsen Bahmani-Oskooee

More articles in Journal of Economic Studies from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().