TY  - JOUR
AU  - Romer,Christina D.
AU  - Romer,David H.
TI  - The FOMC versus the Staff:  Where Can Monetary Policymakers Add Value?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13751
PY  - 2008
Y2  - January 2008
UR  - http://www.nber.org/papers/w13751
L1  - http://www.nber.org/papers/w13751.pdf
N1  - Author contact info:
Christina D. Romer
Department of Economics
University of California, Berkeley
549 Evans Hall, #3880
Berkeley, CA 94720
Tel: 510/642-4317
Fax: 510/642-6615
E-Mail: cromer@econ.berkeley.edu

David H. Romer
Department of Economics
University of California
Berkeley, CA 94720-3880
E-Mail: dromer@econ.berkeley.edu
AB  - Should monetary policymakers take the staff forecast of the effects of policy actions as given, or should they attempt to include additional information?  This paper seeks to shed light on this question by testing the usefulness of the FOMC's own forecasts.  Twice a year, the FOMC makes forecasts of major macroeconomic variables.  FOMC members have access to the staff forecasts when they prepare their forecasts.  We find that the optimal combination of the FOMC and staff forecasts in predicting inflation and unemployment puts a weight of essentially zero on the FOMC forecast and essentially one on the staff forecast:  the FOMC appears to have no value added in forecasting.  The results for predicting real growth are less clear-cut.  We also find statistical and narrative evidence that differences between the FOMC and staff forecasts help predict monetary policy shocks, suggesting that policymakers act in part on the basis of their apparently misguided information.
ER  -