Predicting Fed Forecasts

Neil R. Ericsson

doi:10.6000/1929-7092.2017.06.15

Authors

Neil R. Ericsson Division of International Finance, Board of Governors of the Federal Reserve System

DOI:

https://doi.org/10.6000/1929-7092.2017.06.15

Keywords:

Fed, financial crisis, FOMC, forecasts, GDP, Great Recession, Greenbook, impulse indicator saturation, projections, Tealbook, United States

Abstract

Monetary policy decisions by the Fed's Federal Open Market Committee have attracted considerable attention in recent years, especially with quantitative easing through large-scale asset purchases, the introduction of forward guidance, and increases in the federal funds rate. The FOMC's decisions are based in part on the Greenbook forecasts, which are economic forecasts produced by the Federal Reserve Board's staff and which are presented to the FOMC prior to their policy meetings. Drawing on Stekler and Symington's (2016) textual analysis of the minutes of the FOMC meetings, the current paper shows that those minutes provide a proximate mechanism for inferring the Fed staff's Greenbook forecasts of the U.S. real GDP growth rate, years before the Greenbook's public release. The FOMC minutes are thus highly informative about a key input to monetary policymaking.

References

Banternghansa, C., and M. W. McCracken (2009) “Forecast Disagreement Among FOMC Members”, Federal Reserve Bank of St. Louis Working Paper No. 2009–059A, Research Division, Federal Reserve Bank of St. Louis, St. Louis, Missouri, December.
Banternghansa, C., and M. W. McCracken (2014) “The Effect of FOMC Forecast Disagreement on U.S. Treasuries”, Presentation, International Symposium on Forecasting, Rotterdam, The Netherlands, July 1.
Boukus, E., and J. V. Rosenberg (2006) “The Information Content of FOMC Minutes”, mimeo, Federal Reserve Bank of New York, New York, July.
Chang, A. C., and T. J. Hanson (2016) “The Accuracy of Forecasts Prepared for the Federal Open Market Committee”, Journal of Economics and Business, 83, 23–43.
https://doi.org/10.1016/j.jeconbus.2015.12.001
Danker, D. J., and M. M. Luecke (2005) “Background on FOMC Meeting Minutes”, Federal Reserve Bulletin, 2005, Spring, 175–179.
Doornik, J. A. (2009) “Autometrics”, Chapter 4 in J. L. Castle and N. Shephard (eds.) The Methodology and Practice of Econometrics: A Festschrift in Honour of David F. Hendry, Oxford University Press, Oxford, 88–121.
https://doi.org/10.1093/acprof:oso/9780199237197.003.0004
Doornik, J. A., and D. F. Hendry (2013) PcGive 14, Timberlake Consultants Press, London (3 volumes).
Ericsson, N. R. (2016a) “Eliciting GDP Forecasts from the FOMC’s Minutes Around the Financial Crisis”, International Journal of Forecasting, 32, 2, 571–583.
https://doi.org/10.1016/j.ijforecast.2015.09.007
Ericsson, N. R. (2016b) “Predicting Fed Forecasts”, IFDP Note, Board of Governors of the Federal Reserve System, Washington, D.C., February 12.
Meade, E. E., N. A. Burk, and M. Josselyn (2015) “The FOMC Meeting Minutes: An Assessment of Counting Words and the Diversity of Views”, FEDS Note, Board of Governors of the Federal Reserve System, Washington, D.C., May 26.
Nunes, R. (2013) “Do Central Banks’ Forecasts Take Into Account Public Opinion and Views?”, International Finance Discussion Paper No. 1080, Board of Governors of the Federal Reserve System, Washington, D.C., May.
Stekler, H. O., and H. Symington (2016) “Evaluating Qualitative Forecasts: The FOMC Minutes, 2006–2010”, International Journal of Forecasting, 32, 2, 559–570.
https://doi.org/10.1016/j.ijforecast.2015.02.003