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Journal Article
A fine time for monetary policy?
Recent research in evaluating the effects of monetary policy is potentially tainted by the problem of time aggregation: that is, effects may be incorrectly estimated using quarterly data if the effects of policy occur rapidly. This study evaluates whether time aggregation is a serious problem in a simple vector autoregression. It shows time aggregation has little impact on evaluating the effect of monetary policy in a simple vector autoregression including total reserves, nonborrowed reserves, and the federal funds rate. This finding suggests that time aggregation is unlikely to be important ...
Journal Article
Are economic forecasts rational?
This paper discusses at an undergraduate level how forecast rationality can be tested. It explains that forecasters should correctly use any relevant information they knew in making their predictions. It shows that forecast rationality can be tested by determining whether the forecasters' prediction errors are predictable. After addressing what data and methods can be used for testing rationality, the paper presents tests of the price-forecast rationality of individual professional forecasters. Unlike results of previous studies, the test results show that those forecasters' price predictions ...
Journal Article
Revisionist history: how data revisions distort economic policy research
This article describes how and why official U.S. estimates of the growth in real economic output and inflation are revised over time, demonstrates how big those revisions tend to be, and evaluates whether the revisions matter for researchers trying to understand the economy?s performance and the contemporaneous reactions of policymakers. The conclusion may seem obvious, but it is a point ignored by most researchers: To have a good chance of understanding how policymakers make their decisions, researchers must use not the final data available, but the data available initially, when the policy ...
Journal Article
The U.S. economy in 1989 and 1990: walking a fine line
Journal Article
No relief in sight for the U.S. economy
For at least the next two years, the U.S. economy will grow more slowly than it has on average since World War II. This is the forecast of a Bayesian vector autoregression model developed and used by researchers at the Minneapolis Federal Reserve Bank. The model's previous forecast?of a very weak start to the 1991?92 recovery?was remarkably accurate. Both forecasts are supported by evidence on long-term problems among consumers, in the commercial real estate industry, and at all levels of government. These problems will most likely constrain economic growth for years, although short spurts of ...
Journal Article
Why no crunch from the crash?
Journal Article
The U.S. economy in 1990 and 1991: continued expansion likely
This paper reports an optimistic forecast of U.S. output and inflation trends in 1990_91. Generated by a Bayesian vector autoregression (BVAR) model of the U.S. economy using data available on November 30, 1989, the forecast is more optimistic than a consensus forecast. The key to the model's greater optimism for real growth is its outlook for strong consumer spending. The model's optimism is defended by examining historical precedents as well as comparing the track records of the model and consensus forecasts. The model's measures of forecast uncertainty, however, suggest that its ...