Asymmetry, Complementarities, and State Dependence in Federal Reserve Forecasts

Forecasts are a central component of policymaking; the Federal Reserve's forecasts are published in a document called the Greenbook. Previous studies of the Greenbook's inflation forecasts have found them to be rationalizable but asymmetric if considering particular subperiods, for example...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2020-02, Vol.52 (1), p.205-228
Main Authors: CAUNEDO, JULIETA, DICECIO, RICCARDO, KOMUNJER, IVANA, OWYANG, MICHAEL T.
Format: Article
Language:English
Subjects:
break tests
C53
E47
E52
Economic forecasts
Errors
forecast rationality
Greenbook forecasts
Inflation
loss function
Moderation
Policy making
Taylor rule
Unemployment
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Summary:Forecasts are a central component of policymaking; the Federal Reserve's forecasts are published in a document called the Greenbook. Previous studies of the Greenbook's inflation forecasts have found them to be rationalizable but asymmetric if considering particular subperiods, for example, before and after the Volcker appointment. In these papers, forecasts are analyzed in isolation, assuming policymakers value them independently. We analyze the Greenbook forecasts in a framework in which the forecast errors for different variables are allowed to interact. We find that allowing the losses to interact makes the unemployment forecasts virtually symmetric, the output forecasts symmetric prior to the Volcker appointment, and the inflation forecasts symmetric after the onset of the Great Moderation.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.12590