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The calculus of dissent: Bias and diversity in FOMC projections

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  • Thomas L. Hogan

    (American Institute for Economic Research)

Abstract

Economic projections by the Federal Open Market Committee (FOMC) were very inaccurate in the years during and after the Great Recession. Relying on a model of collective prediction that weighs the “wisdom of crowds” against shared biases, we examine GDP forecast errors in a panel dataset of FOMC projections from 1992 through 2016. Consistent with the model, we find that diversity of projections reduces collective error, while shared bias magnifies collective error. Collective error is associated strongly with errors by the Federal Reserve Board staff. The benefits of diversity often are statistically significant, especially for projections with terms longer than 1 year.

Suggested Citation

  • Thomas L. Hogan, 2022. "The calculus of dissent: Bias and diversity in FOMC projections," Public Choice, Springer, vol. 191(1), pages 105-135, April.
    • Handle: RePEc:kap:pubcho:v:191:y:2022:i:1:d:10.1007_s11127-021-00952-4
    DOI: 10.1007/s11127-021-00952-4
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    More about this item

    Keywords

    Federal Reserve; Forecasting; Committee decisions; Wisdom of crowds;
    All these keywords.

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • 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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