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).