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FOMC Forecasts: Are They Useful for Understanding Monetary Policy?

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  • S. Yanki Kalfa

    (Johns Hopkins School of Advanced International Studies (SAIS), Washington, DC 20036, USA)

  • Jaime Marquez

    (Johns Hopkins School of Advanced International Studies (SAIS), Washington, DC 20036, USA)

Abstract

Monetary policy is forward looking and, in its pursuit of transparency, it communicates its economic projections to the public at large. As a result, there is interest in whether these projections are credible. We argue that central to that credibility is the public’s ability to replicate the FOMC’s projections using publicly available data only. In other words, is it possible to anticipate, reliably and independently, what the FOMC will anticipate for the federal funds rate? To address this question, we assemble FOMC projections from 1992 to 2017; examine their statistical properties; postulate models to predict FOMC projections; and estimate the parameters of these models. We are not arguing that the FOMC determines their projections using these models. Rather, these equations are the ones that the public could use to forecast FOMC forecasts and to anticipate interest-rate decisions.

Suggested Citation

  • S. Yanki Kalfa & Jaime Marquez, 2019. "FOMC Forecasts: Are They Useful for Understanding Monetary Policy?," JRFM, MDPI, vol. 12(3), pages 1-17, August.
    • Handle: RePEc:gam:jjrfmx:v:12:y:2019:i:3:p:133-:d:256778
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    References listed on IDEAS

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    1. David Romer, 2010. "A New Data Set on Monetary Policy: The Economic Forecasts of Individual Members of the FOMC," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 951-957, August.
    2. Fendel, Ralf & Rülke, Jan-Christoph, 2012. "Are heterogeneous FOMC forecasts consistent with the Fed’s monetary policy?," Economics Letters, Elsevier, vol. 116(1), pages 5-7.
    3. Nakazono, Yoshiyuki, 2013. "Strategic behavior of Federal Open Market Committee board members: Evidence from members’ forecasts," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 62-70.
    4. Sheng, Xuguang (Simon), 2015. "Evaluating the economic forecasts of FOMC members," International Journal of Forecasting, Elsevier, vol. 31(1), pages 165-175.
    5. Phillips, Peter C.B., 2005. "Automated Discovery In Econometrics," Econometric Theory, Cambridge University Press, vol. 21(1), pages 3-20, February.
    6. Natsuki Arai, 2016. "Evaluating the Efficiency of the FOMC's New Economic Projections," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(5), pages 1019-1049, August.
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    Cited by:

    1. Arai, Natsuki, 2023. "The FOMC’s new individual economic projections and macroeconomic theories," Journal of Banking & Finance, Elsevier, vol. 151(C).
    2. Jaime Marquez, 2023. "Stylized Facts of the FOMC’s Longer-Run Forecasts," JRFM, MDPI, vol. 16(3), pages 1-20, February.

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    Keywords

    Taylor rule; FOMC; forecasts;
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