Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/28077
Authors: 
Berger, Helge
Ehrmann, Michael
Fratzscher, Marcel
Year of Publication: 
2008
Series/Report no.: 
Diskussionsbeiträge des Fachbereichs Wirtschaftswissenschaft der Freien Universität Berlin 2008/11
Abstract: 
The paper shows that there is a substantial degree of heterogeneity in the ability of Fed watchers to forecast US monetary policy decisions. Based on a novel database for 268 professional forecasters since 1999, the average forecast error of FOMC decisions varies 5 to 10 basis points between the best and worstperformers across the sample. This heterogeneity is found to be related to both the skills of analysts - such as their educational and employment backgrounds - and to geography. In particular, forecasters located in regions which experience more idiosyncratic economic conditions perform worse in anticipating monetary policy. This evidence is indicative that limited attention and heterogeneous priors are present even for anticipating important events such as monetary policy decisions. Moreover, the paper shows that such heterogeneity is economically important as it leads to greater financial market volatility after FOMC meetings. Finally, policy-makers are not impotent in influencing such heterogeneity as Fed communication is found to affect forecast accuracy significantly.
Subjects: 
Monetary policy
forecast
Federal Reserve
FOMC
geography
skills
heterogeneity
survey data
communication
United States.
JEL: 
E52
E58
G14
ISBN: 
3938369825
Document Type: 
Working Paper

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