Geography or Skills: What Explains Fed Watchers' Forecast Accuracy of Us Monetary Policy?

40 Pages Posted: 7 Dec 2006

See all articles by Helge Berger

Helge Berger

Free University Berlin - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Michael Ehrmann

European Central Bank (ECB); Bank of Canada

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2006

Abstract

The paper shows that there is a substantial degree of heterogeneity in forecast accuracy among Fed watchers. 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 worst-performers 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, there is evidence that forecasters located in regions which experience more idiosyncratic economic conditions perform worse in anticipating monetary policy. Moreover, systematic forecaster heterogeneity is economically important as it leads to greater financial market volatility after FOMC meetings. Finally, Fed communication may exert an influence on forecast accuracy.

Keywords: monetary policy, forecast; Federal Reserve, FOMC, geography, skills, heterogeneity, survey data, communication, United States

JEL Classification: E52, E58, G14

Suggested Citation

Berger, Helge and Ehrmann, Michael and Fratzscher, Marcel, Geography or Skills: What Explains Fed Watchers' Forecast Accuracy of Us Monetary Policy? (November 2006). ECB Working Paper No. 695, Available at SSRN: https://ssrn.com/abstract=942735

Helge Berger (Contact Author)

Free University Berlin - Department of Economics ( email )

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Michael Ehrmann

European Central Bank (ECB) ( email )

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Bank of Canada ( email )

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Marcel Fratzscher

DIW Berlin ( email )

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Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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