Title: Revisiting the Fed's forecasting advantage
Authors: Amy Guisinger - Lafayette College (United States) [presenting]
Michael Owyang - Federal Reserve Bank of St Louis (United States)
Michael McCracken - Federal Reserve Bank of St. Louis (United States)
Abstract: Previous studies have found that the Federal Reserve's (Greenbook) forecasts of inflation are superior to that of professional forecasters. More recently, however, it has been suggested that this advantage has been dissipating over time. We revisit previous findings exploiting the additional observations and confirm the Federal Reserve forecasting advantage for inflation, GDP, and the unemployment rate. We then investigate the origin of the Fed's forecasting advantage, taking into account that professional forecasters appear to be catching up with the Fed. We focus on an explanation that was dismissed previously, that the Fed's forecast are conditional on the path of policy, about which the Fed may have more information. To do this, we examine whether the Federal Reserve's advantage remains after controlling for information about future monetary policy. We then consider whether the Fed's advantage remains when the market is operating under the same (or similar) beliefs as the Fed.