The calculus of dissent: Bias and diversity in FOMC projections

Thomas Hogan ()

Public Choice, 2022, vol. 191, issue 1, No 6, 105-135

Abstract: Abstract Economic projections by the Federal Open Market Committee (FOMC) were very inaccurate in the years during and after the Great Recession. Relying on a model of collective prediction that weighs the “wisdom of crowds” against shared biases, we examine GDP forecast errors in a panel dataset of FOMC projections from 1992 through 2016. Consistent with the model, we find that diversity of projections reduces collective error, while shared bias magnifies collective error. Collective error is associated strongly with errors by the Federal Reserve Board staff. The benefits of diversity often are statistically significant, especially for projections with terms longer than 1 year.

Keywords: Federal Reserve; Forecasting; Committee decisions; Wisdom of crowds (search for similar items in EconPapers)
JEL-codes: D71 D73 E37 E47 E58 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11127-021-00952-4

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