Monday, January 07, 2008

Sure, the Food is bad, but at least the Portions are large

So say the Romers regarding the economic expertise of FOMC members:

"Twice a year, the FOMC makes forecasts of major macroeconomic variables.
FOMC members have access to the staff forecasts when they prepare their forecasts, and they have roughly a two-week data advantage over the staff. We find, however, that the optimal combination of the FOMC and staff forecasts in predicting inflation and unemployment puts a weight of essentially zero on the FOMC forecast and essentially one on the staff forecast: the FOMC appears to have no value added in forecasting. The results for predicting real growth are less clear-cut. We also find statistical and narrative evidence that differences between the FOMC and staff forecasts help predict monetary policy shocks, suggesting that policymakers act in part on the basis of their apparently useless information."

Wow. and they presented this at the AEAs at a session chaired by Fed vice-chair Kohn. Kudos to them!

Update: Kevin Hassett provides some thoughts about FOMC expertise here.

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