April 2018

The Fed's Asymmetric Forecast Errors

Andrew C. Chang


I show that the probability that the Board of Governors of the Federal Reserve System staff's forecasts (the "Greenbooks") overpredicted quarterly real gross domestic product (GDP) growth depends on both the forecast horizon and also whether the forecasted quarter was above or below trend real GDP growth. For forecasted quarters that grew below trend, Greenbooks were much more likely to overpredict real GDP growth, with one-quarter ahead forecasts overpredicting real GDP growth more than 75% of the time, and this rate of overprediction was higher for further ahead forecasts. For forecasted quarters that grew above trend, Greenbooks were slightly more likely to underpredict real GDP growth, with one-quarter ahead forecasts underpredicting growth about 60% of the time. Unconditionally, on average, Greenbooks overpredicted real GDP growth.
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Keywords: Asymmetric Forecast Errors, Federal Open Market Committee, Forecast Accuracy, Greenbook, Monetary policy, Real-Time Data

DOI: https://doi.org/10.17016/FEDS.2018.026

PDF: Full Paper

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Last Update: January 09, 2020