Gaging the Uncertainty of the Economic Outlook from Historical Forecasting Errors

42 Pages Posted: 4 Dec 2007

See all articles by David Reifschneider

David Reifschneider

Federal Reserve Board - Division of Research and Statistics

Peter Tulip

Reserve Bank of Australia

Date Written: November 2007

Abstract

Participants in meetings of the Federal Open Market Committee (FOMC) regularly produce individual projections of real activity and inflation that are published in summary form. These summaries indicate participants' views about the most likely course for the macro-economy but, by themselves, are not enough to gauge the full range of possible outcomes - that is, the uncertainty surrounding the outlook. To this end, FOMC participants will now provide qualitative assessments of how they view the degree of current uncertainty relative to that which prevailed on average in the past. This paper discusses a method for gaging the average magnitude of historical uncertainty using information on the predictive accuracy of a number of private and government forecasters. The results suggest that, if past performance is a reasonable guide to the accuracy of future forecasts, considerable uncertainty surrounds all macroeconomic projections, including those of FOMC participants.

Keywords: Uncertainty, forecasting, FOMC, monetary policy, prediction errors

JEL Classification: E20, D12, J30

Suggested Citation

Reifschneider, David and Tulip, Peter, Gaging the Uncertainty of the Economic Outlook from Historical Forecasting Errors (November 2007). FEDS Working Paper No. 2207-60. Available at SSRN: https://ssrn.com/abstract=1050941 or http://dx.doi.org/10.2139/ssrn.1050941

David Reifschneider (Contact Author)

Federal Reserve Board - Division of Research and Statistics ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2941 (Phone)

Peter Tulip

Reserve Bank of Australia ( email )

GPO Box 3947
Sydney, NSW 2001
Australia
61-2-9551-8831 (Phone)

HOME PAGE: http://www.petertulip.com

Register to save articles to
your library

Register

Paper statistics

Downloads
120
Abstract Views
862
rank
236,840
PlumX Metrics