Jointly Evaluating GDP and Inflation Forcasts in the Context of the Taylor Rule

Tara Sinclair, Herman Stekler, Elizabeth Reid () and Edward Gamber ()
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Elizabeth Reid: Department of Economics, George Washington University
Edward Gamber: Department of Economics and Business, Lafayette College

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: This paper evaluates the potential impact of forecast errors on policy. We jointly evaluate the Federal Reserve staff forecasts of U.S. real output growth and the inflation rate in the context of the Taylor (1993) monetary policy rule. Our simple methodology generates policy forecast errors which have a direct interpretation for the impact of forecast errors on policy. Without interest rate smoothing, we find that, on average, Fed policy based on the Taylor rule would have been approximately a full percentage point away from the intended target because of errors in forecasting output growth and inflation.

Keywords: Forecast Evaluation; Federal Reserve Forecasts; Monetary Policy (search for similar items in EconPapers)
JEL-codes: C53 E37 E52 E58 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2009-06
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2008-05

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