What can we learn from revisions to the Greenbook forecasts?

• We examine the revisions of the Fed Greenbook fixed event predictions.
• Biases are not explained by forecast smoothing.
• Instead we find some negative coefficients on the forecast revisions.
• In these cases the Fed may be over-responsive to new information.

Although there have been many evaluations of the Federal Reserve’s Greenbook forecasts, we analyze them in a different dimension. We examine the revisions of these forecasts in the context of fixed event predictions to determine how new information is incorporated in the forecasting process. This analysis permits us to determine if there was an inefficient use of information in the sense that the forecast revision has predictive power for the forecast error. Research on forecast smoothing suggests that we might find a positive relationship between the forecast error and the forecast revision. Although we do find for some variables and horizons the Fed’s forecast errors are predictable from its forecast revisions, there is no evidence of forecast smoothing. Instead the revisions sometimes have a negative relationship with the forecast error, suggesting in these cases that the Fed may be over-responsive to new information.