Transparency, Expectations, and Forecasts

ECB Working Paper No. 637

FRB of Atlanta Working Paper No. 2006-3

52 Pages Posted: 26 Apr 2006

See all articles by Andy Bauer

Andy Bauer

Federal Reserve Bank of Richmond; Federal Reserve Bank of Atlanta

Robert Eisenbeis Eisenbeis

Independent

Daniel F. Waggoner

Federal Reserve Bank of Atlanta

Tao A. Zha

Federal Reserve Bank of Atlanta

Date Written: June 2006

Abstract

In 1994 the FOMC began to release statements after each meeting. This paper investigates whether the public's views about the current path of the economy and of future policy have been affected by changes in the Federal Reserve's communications policy as reflected in private sector's forecasts of future economic conditions and policy moves. In particular, has the ability of private agents to predict where the economy is going improved since 1994? If so, on which dimensions has the ability to forecast improved? We find evidence that the individuals' forecasts have been more synchronized since 1994, implying the possible effects of the FOMC's transparency. On the other hand, we find little evidence that the common forecast errors, which are the driving force of overall forecast errors, have become smaller since 1994.

Keywords: Transparency, common errors, idiosyncratic errors

JEL Classification: E59, C33

Suggested Citation

Bauer, Andrew and Eisenbeis, Robert Eisenbeis and Waggoner, Daniel F. and Zha, Tao A., Transparency, Expectations, and Forecasts (June 2006). ECB Working Paper No. 637; FRB of Atlanta Working Paper No. 2006-3. Available at SSRN: https://ssrn.com/abstract=898205

Andrew Bauer

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Robert Eisenbeis Eisenbeis (Contact Author)

Independent ( email )

No Address Available

Daniel F. Waggoner

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-521-8278 (Phone)

Tao A. Zha

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-521-8353 (Phone)
404-521-8956 (Fax)

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