scholarly journals Raiders of the Lost High-Frequency Forecasts: New Data and Evidence on the Efficiency of the Fed's Forecasting

2020 ◽  
Vol 2020 (089) ◽  
pp. 1-56
Author(s):  
Andrew C. Chang ◽  
◽  
Trace J. Levinson ◽  
Keyword(s):  
Forecast Errors ◽  
Time Varying ◽  
Open Market ◽  
Federal Open Market Committee ◽  
Forecast Revisions ◽  
Consumption Expenditures ◽  
Inflation Forecasts ◽  
Board Of Governors ◽  
Personal Consumption ◽  
Reserve System

We introduce a new dataset of real gross domestic product (GDP) growth and core personal consumption expenditures (PCE) inflation forecasts produced by the staff of the Board of Governors of the Federal Reserve System. In contrast to the eight Greenbook forecasts a year the staff produces for Federal Open Market Committee (FOMC) meetings, our dataset has roughly weekly forecasts. We use these new data to study whether the staff forecasts efficiently and whether efficiency, or lack thereof, is time-varying. Prespecified regressions of forecast errors on forecast revisions show that the staff's GDP forecast errors correlate with its GDP forecast revisions, particularly for forecasts made more than two weeks from the start of a FOMC meeting, implying GDP forecasts exhibit time-varying inefficiency between FOMC meetings. We find some weaker evidence for inefficient inflation forecasts.

scholarly journals The CPI–PCEPI Inflation Differential: Causes and Prospects

2020 ◽  
pp. 1-8
Author(s):  
Wesley Janson ◽  
Randal J. Verbrugge ◽  
Carola Conces Binder
Keyword(s):  
Price Index ◽  
Consumer Price Index ◽  
Open Market ◽  
Financial Contracts ◽  
Inflation Target ◽  
Consumption Expenditures ◽  
Inflation Forecasts ◽  
Personal Consumption ◽  
Inflation Differential ◽  
Historical Episode

The Federal Open Market Committee’s inflation target is stated in terms of the personal consumption expenditures price index (PCEPI). The PCEPI, like the consumer price index (CPI), measures inflation in the expenditures of households, but these indexes differ in purpose, scope, and construction. Notably, since the CPI is used as the reference rate for numerous financial contracts, one can derive implied longer-run CPI inflation forecasts from financial contracts. Such forecasts are widely reported. But if policymakers are to use these forecasts to guide their pursuit of the inflation target, they need to translate these CPI inflation forecasts into corresponding implied PCEPI forecasts. Since 1978, CPI inflation has averaged 0.3 percentage points above PCEPI inflation, but this differential has varied significantly over time. In this Commentary, we explain why, investigate a key historical episode, and provide an updated estimate of the likely differential going forward.

scholarly journals Market Participants Neither Commit Predictable Errors nor Conform to REH: Evidence from Survey Data of Inflation Forecasts

2021 ◽  
Author(s):  
Roman Frydman ◽  
◽  
Joshua Stillwagon ◽  
Keyword(s):  
Survey Data ◽  
Forecast Errors ◽  
Forecast Revisions ◽  
Market Participants ◽  
Inflation Forecasts

We develop a novel characterization of participants’ forecasts with a mixture of normal variables arising from a Markov component. Using this characterization, we formulate five behavioral specifications, including four implied by the diagnostic expectations approach, as well as three implied by REH, and derive several new predictions for Coibion and Gorodnichenko.s regression of forecast errors on forecast revisions. Predictions of all eight specifications are inconsistent with the observed instability of individual CG regressions’ coefficients, based on inflation forecasts from 24 professionals. Our findings suggest how to build on key insights of the REH and behavioral approaches in specifying individuals’ forecasts.

How Forecasts Evolve - The Growth Forecasts of the Federal Reserve and the Bank of England

2005 ◽  
Vol 193 ◽  
pp. 53-59
Author(s):  
William A. Allen ◽  
Terence Mills
Keyword(s):  
Federal Reserve ◽  
Systematic Errors ◽  
Behaviour Pattern ◽  
Gdp Growth ◽  
Forecast Errors ◽  
Open Market ◽  
Federal Open Market Committee ◽  
Monetary Policy Committee ◽  
Bank Of England ◽  
Using Data

We investigate how central bank forecasts of GDP growth evolve through time, and how they are adapted in the light of official estimates of actual GDP growth. Using data for 1988–2005, we find that the Federal Open Market Committee (FOMC) has typically adjusted its forecast for growth over the coming four quarters by about a third of the unexpected component of estimated growth in the four quarters most recently ended. We were unable to find any clear signs of systematic errors in the FOMC's forecasts. UK data for 1998–2005 suggest that the Bank of England Monetary Policy Committee (MPC) did not adjust its forecasts in this way, and that there were systematic forecast errors, but the evidence from the latter part of the period 2001–5 tentatively shows a behaviour pattern closer to that of the FOMC, with no clear signs of systematic errors.

scholarly journals A new look at historical monetary policy (and the great inflation) through the lens of a persistence-dependent policy rule

2020 ◽  
Vol 72 (3) ◽  
pp. 672-691 ◽  
Author(s):  
Richard Ashley ◽  
Kwok Ping Tsang ◽  
Randal Verbrugge
Keyword(s):  
Alternative View ◽  
Open Market ◽  
Policy Rule ◽  
Federal Open Market Committee ◽  
Inflation Forecasts ◽  
Gap Measurement ◽  
Fourier Filtering ◽  
Great Inflation ◽  
Actual Use ◽  
Econometric Approach

Abstract The origins of the Great Inflation, a central 20th-century U.S. macroeconomic event, remain contested. Prominent explanations are poor inflation forecasts or inaccurate output gap measurement. An alternative view is that the Federal Open Market Committee (FOMC) was unwilling to fight inflation, perhaps due to political pressures. Here, we sort this out via a novel econometric approach, disaggregating the real-time unemployment and inflation time series entering the FOMC historical policy reaction-function into persistence components, using one-sided Fourier filtering; this implicitly estimates the unemployment gap in actual use. We find compelling evidence for (economically interpretable) persistence-dependence in both variables. Furthermore, our results support the “unwilling to fight” view: the FOMC’s unemployment gap responses were essentially unchanged pre- and post-Volcker, while its inflation responses sharpened markedly starting with Volcker.

The ‘Even Keel’ Decisions of the Federal Open Market Committee

1970 ◽  
Vol 26 (6) ◽  
pp. 105-117 ◽  
Author(s):  
William P. Yohe ◽  
Louis C. Gasper
Keyword(s):  
Open Market ◽  
Federal Open Market Committee

Cryptocurrency bubble risk and the FOMC announcements during COVID-19 black swan event

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anis Jarboui ◽  
Emna Mnif
Keyword(s):  
Federal Reserve ◽  
Abnormal Returns ◽  
Relevant Information ◽  
Future Research ◽  
Open Market ◽  
Predictive Capacity ◽  
Federal Open Market Committee ◽  
Content Type ◽  
Cumulative Abnormal Returns ◽  
Practical Implications

Purpose After the COVID-19 outbreak, the Federal Reserve has undertaken several monetary policies to alleviate the pandemic consequences on the markets. This paper aims to evaluate the effects of the Federal Reserve monetary policy on the cryptocurrency dynamics during the COVID19 pandemic. Design/methodology/approach We examine the response and feedback effects via an event study methodology. For this purpose, abnormal returns (AR) and cumulative abnormal returns (CARs) around the first FOMC (Federal Open Market Committee) announcement related to the COVID-19 pandemic for the top five cryptocurrencies are explored. We, further investigate the effect of the eight FOMC statement announcements during the COVID19 pandemic on these cryptocurrencies (Bitcoin, Ethereum, Tether, Litecoin, and Ripple). In the above-mentioned crypto-currency markets, we investigate the presence of bubbles by using the PSY test. We then examine the concordance of the dates of these bubbles with the dates of the FOMC announcements. Findings The empirical results show that the first FOMC event has a negative significant effect after 4 days of the announcement date for all studied cryptocurrencies except Tether. The results also indicate that cumulative abnormal returns are significant during the event windows of (−3,8), (−3,9), and (−3,10). Besides, we find that Bitcoin, Ethereum and, Litecoin lived short bubbles lasting for a few days. However, Ripple and Tether markets present no bubbles and no explosive periods. Research limitations/implications This paper presents trained proof that FOMC announcements have a positive effect on volatility's predictive capacity. This work therefore promotes the study of the data quality of volatility in future research as well. Practical implications The justified effect of the FOMC announcements on cryptocurrency as a speculative asset has practical implications for investors in building their trading strategies in anticipation of the next FOMC announcement. Therefore, this study implies that the FOMC announcements contain very relevant information for investors in the cryptocurrency market. This research may not only encourage a better understanding of the evolution of the expectations of policymakers, but also facilitate a better understanding of how these expectations are developed. Originality/value The COVID-19 pandemic has disturbed the stability of financial markets, inciting the Fed to take some monetary regulations. To the best of our knowledge, this study is the first one that analyses the response of five major cryptocurrencies to FOMC announcements during COVID 19 pandemic and associates these dates with bubble occurrences.

scholarly journals The Effect of FOMC Votes on Financial Markets

2019 ◽  
Vol 101 (5) ◽  
pp. 921-932
Author(s):  
Carlos Madeira ◽  
João Madeira
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Open Market ◽  
Federal Open Market Committee ◽  
2008 Financial Crisis ◽  
Treasury Securities ◽  
Stock Market Reaction

This paper shows that since votes of members of the Federal Open Market Committee have been included in press statements, stock prices increase after the announcement when votes are unanimous but fall when dissent (which typically is due to preference for higher interest rates) occurs. This pattern started prior to the 2007–2008 financial crisis. The differences in stock market reaction between unanimity and dissent remain, even controlling for the stance of monetary policy and consecutive dissent. Statement semantics also do not seem to explain the documented effect. We find no differences between unanimity and dissent with respect to impact on market risk and Treasury securities.

Seeing Like the Fed: Culture, Cognition, and Framing in the Failure to Anticipate the Financial Crisis of 2008

2017 ◽  
Vol 82 (5) ◽  
pp. 879-909 ◽  
Author(s):  
Neil Fligstein ◽  
Jonah Stuart Brundage ◽  
Michael Schultz
Keyword(s):  
Decision Making ◽  
Financial Crisis ◽  
Recent Work ◽  
Open Market ◽  
Financial Instruments ◽  
Federal Open Market Committee ◽  
Macroeconomic Theory ◽  
Making Sense ◽  
Financial Crisis Of 2008 ◽  
Positive Light

One of the puzzles about the financial crisis of 2008 is why regulators, particularly the Federal Open Market Committee (FOMC), were so slow to recognize the impending collapse of the financial system and its broader consequences for the economy. We use theory from the literature on culture, cognition, and framing to explain this puzzle. Consistent with recent work on “positive asymmetry,” we show how the FOMC generally interpreted discomforting facts in a positive light, marginalizing and normalizing anomalous information. We argue that all frames limit what can be understood, but the content of frames matters for how facts are identified and explained. We provide evidence that the Federal Reserve’s primary frame for making sense of the economy was macroeconomic theory. The content of macroeconomics made it difficult for the FOMC to connect events into a narrative reflecting the links between foreclosures in the housing market, the financial instruments used to package the mortgages into securities, and the threats to the larger economy. We conclude with implications for the sociological literatures on framing and cognition and for decision-making in future crises.

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