Pitting The Fed Against Private Forecasters
August 9, 2000
Just how good are Federal Reserve economists at forecasting future inflation and growth?
A study in the American Economic Review by Christina D. Romer and David H. Romer of the University of California at Berkeley gives them high marks -- or at least higher marks than for private sector economists.
Since Fed forecasts -- which are prepared eight times a year -- remain secret for five years, the researchers went back to the 1960s and reviewed forecasts up to the early 1990s.
- The Fed projections on inflation and growth for the following 12 to 18 months were compared with the consensus forecasts of private economists.
- The researchers found that the Fed's forecasts were consistently better than the private ones.
- The inflation forecasts were so good that private economists -- had they had access to them -- would have done better to ignore their own calculations entirely.
- The Fed's growth forecasts were nearly as good.
Source: Gene Koretz, "The Infallible Dr. Greenspan?" Business Week, August 14, 2000.
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