Fiscal Forecasts at the FOMC: Evidence from the Greenbooks

This paper uses a new data set of fiscal policy forecasts and estimates prepared for the FOMC to understand how they have influenced U.S. monetary policy. We find limited evidence of bias in the Fed Staff’s fiscal forecasts and that these forecasts contain useful information beyond that in the CBO’s forecasts. Forecast errors for the fiscal variables have been only weakly correlated with forecast errors for inflation and output growth, but those for the structural surplus are much more highly correlated with those for the unemployment rate. Some fiscal variables can also account for a significant fraction of the “exogenous” changes in the federal funds rate target studied by Romer and Romer (2004).
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