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Abstract:
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One of the tantalizing features of the Summary of Economic Projections (SEP) reported by the Federal Reserve Open Market Committee (FOMC) is the inclusion of projections of the "Longer run:" The longer-run projections represent each participant's assessment of the value to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. Given that these forecasts assume that the FOMC implements an appropriate monetary policy and there are no further shocks, one may ask how these longer run FOMC forecasts are determined. Further, to the extent that the SEP seeks to enhance the public’s understanding of monetary, the natural question is whether these forecasts can be replicated independently by the public with publicly available data? I study these questions from an empirical standpoint using I estimate the parameters of this model using FOMC forecasts from 2012:Q1 to 2019:Q4 and then examine the model’s forecasts from 2020:Q1 to 2030:Q4.
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