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A day late and a dollar short: The effect of policy uncertainty on fed forecast errors

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  • Jones, Adam T.
  • Ogden, Richard E.

Abstract

Policy makers at the Federal Reserve must make decisions on less than perfect information. To the extent their forecasts are incorrect, policy decisions will also be incorrect. Unfortunately, economic forecasters have a relatively poor record and have not improved as much as one would hope. The research presented in this paper examines one potential source of forecast improvement, economic policy uncertainty. Modeling emotional responses of economic agents to uncertainty is difficult but the inclusion of a policy uncertainty variable could reduce forecast errors of the FOMC’s consensus forecast by as much as 20%.

Suggested Citation

  • Jones, Adam T. & Ogden, Richard E., 2017. "A day late and a dollar short: The effect of policy uncertainty on fed forecast errors," Economic Analysis and Policy, Elsevier, vol. 54(C), pages 112-122.
    • Handle: RePEc:eee:ecanpo:v:54:y:2017:i:c:p:112-122
    DOI: 10.1016/j.eap.2017.03.004
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    More about this item

    Keywords

    Economic forecast; Policy uncertainty; Federal Reserve; FOMC;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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