Andrew Bauer, Robert A. Eisenbeis, Daniel F. Waggoner, and Tao Zha
Working Paper 2006-3
April 2006
Download the full text of this paper (520 KB) 
In 1994, the Federal Open Market Committee (FOMC) began to release statements after each meeting. This paper investigates whether the public’s views about the current path of the economy and of future policy have been affected by changes in the Federal Reserve’s communications policy as reflected in private sector’s forecasts of future economic conditions and policy moves. In particular, has the ability of private agents to predict where the economy is going improved since 1994? If so, on which dimensions has the ability to forecast improved? We find evidence that the individuals’ forecasts have been more synchronized since 1994, implying the possible effects of the FOMC’s transparency. On the other hand, we find little evidence that the common forecast errors, which are the driving force of overall forecast errors, have become smaller since 1994.
JEL classification: E59, C33
Key words: transparency, common errors, idiosyncratic errors
This article was presented at the fourth European Central Bank Workshop on Forecasting Techniques, held on December 14–15, 2005, in Frankfurt, Germany. The authors thank John Robertson and Ellis Tallman for critical comments and Cindy Soo and Eric Wang for excellent research assistance. A similar version of this research is also published with the same title in the first quarter issue of the Atlanta Fed’s Economic Review. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.
Please address questions regarding content to Andy Bauer, Senior Economic Analyst, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-7906, andy.bauer@atl.frb.org; Robert Eisenbeis (corresponding author), Executive Vice President and Director of Research, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8824, robert.a.eisenbeis@atl.frb.org; Daniel Waggoner, Assistant Policy Adviser, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8278, daniel.f.waggoner@atl.frb.org; or Tao Zha, Policy Adviser, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, 404-498-8353, tzha@earthlink.net.
For further information, contact the Public Affairs Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-8020.