The purpose of the paper is to answer the following two questions regarding the performance of the influential Federal Open Market Committee (FOMC) of the Federal Reserve System, in comparison with the forecasts contained in the “Greenbooks” of the professional staff of the Board of Governors: (i) Does the FOMC have expertise? (ii) Can the FOMC forecast better than the staff? The FOMC forecasts that are analyzed in practice are non-replicable forecasts. In order to evaluate such forecasts, this paper develops a model to generate replicable FOMC forecasts, and compares the staff forecasts, non-replicable FOMC forecasts, and replicable FOMC forecasts, considers optimal forecasts and efficient estimation methods, and presents a direct test of FOMC expertise on non-replicable FOMC forecasts. The empirical analysis of Romer and Romer (2008) is re-examined to evaluate whether their criticisms of the FOMC's forecasting performance should be accepted unreservedly, or might be open to alternative interpretations.

hdl.handle.net/1765/127844
18th World IMACS Congress and International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, MODSIM 2009
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Department of Econometrics

Franses, Ph.H.B.F, McAleer, M.J, & Legerstee, R. (2020). How good are FOMC forecasts?. In 18th World IMACS Congress and MODSIM 2009 - International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, Proceedings (pp. 1314–1320). Retrieved from http://hdl.handle.net/1765/127844