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Journal Article
A forward-looking monetary policy reaction function: continuity and change
This study suggests that U.S. monetary policy has been influenced by forecasts of and past experience with three broad factors: inflation, economic activity, and the monetary aggregates. The influence of each factor has varied, however, within this common theme. In the past 22 years at least two specific changes have occurred: the October 1979 shift to greater emphasis on a narrow measure of money and a shift in the early 1980s from M1 targeting to M2. ; The author models monetary policy econometrically, testing the influence of numerous factors on monetary policy and investigating whether a ...
Journal Article
Estimating GNP: the trade-off between timeliness and accuracy
Journal Article
Man vs. model? The role of judgment in forecasting
This article presents evidence on the role that judgmental adjustments play in macroeconomic forecast accuracy. It starts by contrasting the predictive records of four prominent forecasters who adjust their models with those of three models that are used mechanically. The adjusted forecasts tend to be more accurate overall, although important exceptions can be found. Next the article compares adjusted forecasts with those generated mechanically by the same models. Again, with some significant exceptions, judgmental adjustments improve accuracy more often than not. ; The article closes by ...
Journal Article
How fast can we grow?
Nearly thirty years ago, Arthur Okun posed the question, "How much output can the economy produce under conditions of full employment?" He offered a "simple and direct" answer that now, with the benefit of hindsight, seems outmoded and inadequate. This article argues that a minor modification of Okuns procedure based on demographics can adequately account for changes in the potential growth rate over the last 35 years and provide an idea of what to expect in the next ten years. Specifically, it is suggested that changes in the composition and rate of growth of the working-age population ...
Journal Article
Why do forecasts differ?
Journal Article
How large are economic forecast errors?
Opinion about the reliability of economic forecasts ranges widely. Some argue that they are literally worthless, at the same time that most forecasters can point to a sequence of near perfect predictions. How much confidence should one place in economic forecasts? The errors vary with many factors. ; A crucial determinant of the size of forecast errors is the forecast period; some periods are very difficult to predict while others are relatively easy. By far the largest errors were the sustained underestimations of the acceleration of inflation in 1973-75 and again in 1978-80. In addition, ...
Journal Article
Diversity, uncertainty, and accuracy of inflation forecasts
Uncertainty is a key concept in both economic theory and economic practice. Yet, economic forecasts are usually stated as single numbers, or "point estimates," that convey no information about the full array of possible outcomes. The dispersion of individual forecasters' point estimates is often used as an approximation of forecast uncertainty, even though it is neither logically nor empirically related. In fact, the diversity of point estimates is a poor guide to the accuracy of a point estimate forecast. ; This article examines explicit estimates of forecast uncertainty, taken from the ...