The Superiority of Greenbook Forecasts and the Role of Recessions

Abstract:     
In this paper, we investigate the role of recessions on the relative forecasting performance of the Fed and the private sector. Romer and Romer (2000) showed that the Fed's forecasts of inflation and output were superior to that of the private sector in the pre-1991 period. D'Agostino and Whelan (2008) found that the information superiority of the Fed deteriorated after 1991. Our results show that the information superiority of the Fed in forecasting real activity did arise from its forecasting dominance during recessions. If recessions are excluded from the pre-1992 period, the informational advantage of the Fed disappears, and in some cases, private sector forecasts perform better. We do not find any systematic effect of recessions on inflation forecasts.

Number of Pages in PDF File: 28

Keywords: Greenbook Forecasts, Recessions, Business Cycle Turning Points

JEL Classification: E31, E32, E37

working papers series