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Discussion Paper
Data Insight: Which Growth Rate? It’s a Weighty Subject
The growth rate in real gross domestic product (GDP) is a conventional indicator of the economy’s health. But the two ways of measuring annual GDP growth can give very different answers. In 2013, GDP grew 2.2 percent on a year-over-year basis, but at a faster 3.1 percent rate on a Q4-over-Q4 basis. So, which measure is more meaningful? We show in this post that the Q4/Q4 metric is better since it only considers quarterly growth rates during the current year, while the Year/Year measure depends on quarterly growth rates in both the current and previous year and puts considerable weight on ...
Working Paper
Hawkish or Dovish Fed? Estimating a Time-Varying Reaction Function of the Federal Open Market Committee's Median Participant
This paper estimates a time-varying reaction function of the median participant of the Federal Open Market Committee, using a Taylor rule with time-varying coefficients estimated on one- to three-year ahead median forecasts of the federal funds rate, inflation, and the unemployment rate from the Summary of Economic Projections (SEP). We estimate the model with Bayesian methods, incorporating the effective lower bound on the median federal funds rate projections. The results indicate that the monetary policy rule has become significantly more persistent after the pandemic than in the years ...
Journal Article
Wringing the Overoptimism from FOMC Growth Forecasts
Growth forecasts by Federal Open Market Committee meeting participants were persistently too optimistic for 2008 through 2016. The typical forecast started out high but was revised down over time, often dramatically, as incoming data failed to meet expectations. In contrast, forecasts for 2017 through 2019 started low but were revised up over time. Cumulative forecast revisions for these years were much smaller on average than in the past. These observations suggest that participants have adjusted their forecast methodology, including lowering estimates of trend growth, to eliminate the prior ...