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Geography, skills or both: What explains Fed watchers' forecast accuracy of US monetary policy?

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  • Berger, Helge
  • Ehrmann, Michael
  • Fratzscher, Marcel

Abstract

The paper shows that there is a substantial degree of heterogeneity in the ability of Fed watchers to forecast US monetary policy decisions. Based on a novel database for 268 individual professional forecasters since 1999, the average absolute forecast error of FOMC decisions varies 5-10 basis points between the best and worst-performers across the sample. This heterogeneity is found to be related to both the skills of analysts - such as their educational and employment backgrounds - and to geography. In particular, forecasters located in regions which experience more idiosyncratic economic conditions perform worse in anticipating monetary policy. This evidence is indicative that limited attention and heterogeneous priors are present even for anticipating important events such as monetary policy decisions.

Suggested Citation

  • Berger, Helge & Ehrmann, Michael & Fratzscher, Marcel, 2011. "Geography, skills or both: What explains Fed watchers' forecast accuracy of US monetary policy?," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 420-437, September.
    • Handle: RePEc:eee:jmacro:v:33:y:2011:i:3:p:420-437
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    7. John Ammer & John Rogers & Gang Wang & Yang Yu, 2020. "Monetary Policy Expectations, Fund Managers, and Fund Returns: Evidence from China," International Finance Discussion Papers 1285, Board of Governors of the Federal Reserve System (U.S.).
    8. Bennani, Hamza, 2014. "Does one word fit all? The asymmetric effects of central banks' communication policy," MPRA Paper 57150, University Library of Munich, Germany.
    9. Frenkel, Michael & Mauch, Matthias & Rülke, Jan-Christoph, 2020. "Do forecasters of major exchange rates herd?," Economic Modelling, Elsevier, vol. 84(C), pages 214-221.
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