Forecast errors before and during the Great Moderation

This paper investigates the change in private sector and Federal Reserve forecasts before and during the Great Moderation. We view the Great Moderation as a natural experiment. Using forecasts produced by the Survey of Professional Forecasters and the Federal Reserve (Greenbook forecasts) we investigate three questions: (1) How large was the decline in forecast errors? (2) Did forecast accuracy improve relative to the decline in volatility of growth and inflation? (3) Did forecasters respond to the Great Moderation? We find that the absolute median error as well as the cross-sectional volatility of forecast errors decreased significantly. Forecasters appeared to have narrowed the dispersion of their forecasts in response to the Great Moderation. Forecast accuracy did not improve relative to the reduction in the volatility of the economy.

Title	Forecast errors before and during the Great Moderation
Creator	Weiss, M. A.
	Smith, Julie K.
	Gamber, Edward
Publisher	Journal of Economics and Business
Academic Department	Economics
Division	Social Sciences
Organization	Lafayette College
Date Issued	2011
Date Available	2015-04-14T14:16:24Z
Type	Article
Language	English
Keyword	Survey of Professional Forecasters
	forecast errors
	Great Moderation
Bibliographic Citation	Gamber, E., J. K. Smith, and M. A. Weiss (2011) "Forecast errors before and during the Great Moderation." Journal of Economics and Business 63 (4): 278-89.
Standard Identifier	Handle 10385/1787
Standard Identifier	DOI 10.1016/j.jeconbus.2010.08.001
Permalink	http://hdl.handle.net/10385/1787
Rights Statement	In Copyright
Rights Holders	Elsevier Inc.