Forecasting FOMC Forecasts

• Activity Number: 312 - Macroeconomic Forecasting in Theory and Practice
• Type: Topic-Contributed
• Date/Time: Wednesday, August 11, 2021 : 3:30 PM to 5:20 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Jaime Marquez* and S. Yanki Kalfa
• Companies: Johns Hopkins University and Rady School of Managment University of California @ San Diego
• Keywords: Forecasts; FOMC; Autometrics; FIML; Greenbook; VAR

Abstract

Hendry's (1980, p. 403) three golden rules of econometrics are "test, test, and test". The current paper applies that approach to model the forecasts of the Federal Open Market Committee over 1992---2019 and to forecast those forecasts themselves. Monetary policy is forward-looking and, as part of the FOMC's effort for transparency, the FOMC publishes its (forward-looking) economic projections. The overall views on the economy of the FOMC participants--as characterized by the median of their projections for inflation, unemployment, and the Fed's policy rate--are themselves predictable on information publicly available at the time of the FOMC's meeting. Their projections also communicate systematic behavior on the part of the FOMC's participants.