Reconsidering the Fed's Inflation Forecasting Advantage

Reconsidering the Fed's Inflation Forecasting Advantage

Previous studies show the Fed has a forecast advantage over the private sector for inflation. We evaluate this advantage to determine how much of it results from the Fed's knowledge of future monetary policy. To do so, we develop two methods of equalizing the Fed's and private sector'...

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Bibliographic Details
Published in:Journal of money, credit and banking
Main Authors: GUISINGER, AMY Y., MCCRACKEN, MICHAEL W., OWYANG, MICHAEL T.
Format: Journal Article
Language:English
Published: 24-05-2024
Online Access:Get full text
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Summary:Previous studies show the Fed has a forecast advantage over the private sector for inflation. We evaluate this advantage to determine how much of it results from the Fed's knowledge of future monetary policy. To do so, we develop two methods of equalizing the Fed's and private sector's information sets. We find that Fed forecasts do not encompass those of the private sector when the latter has knowledge of future monetary policy. Furthermore, we find that roughly 25% of the difference between the Fed's and the private sector's mean squared forecast error can be explained by monetary policy.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.13155